Some months ago, I received an email from a reader who was considering a particular mutual fund investment and had this question:
I was looking at the holdings of a particular mutual fund and noticed a few gaming (i.e., casino games/gambling) companies in the holdings. What are your thoughts on that as believers? It is a very small percentage of the money in the fund, comparatively speaking, but I was interested in seeking broad counsel on this question or if it was something you've considered before.
The reader is certainly to be commended for asking these hard questions. He inquired about what is sometimes called "faith-based," "Christian-based," or "biblically screened or responsible" investing.
I wanted to write about this, but as I told the reader, I wouldn't describe myself as a "faith-based investor," strictly speaking, and I hadn't given it much thought, so I wasn't prepared to write about it any time soon. (I have described my general approach to investing in previous articles.)
A few months later, I connected with a reader named Jake Ridley, who also happens to be a Certified Financial Planner (CFP) and recently started "Church Fiduciary," a practice focused on helping churches set up and manage retirement plans for their pastors and staff. (You can read Jake's bio here.)
We started a conversation about this subject sparked by a quote he had read online (which I'll share shortly). It relates to the first reader's question about whether he should invest in a mutual fund that holds a few gaming (gambling) companies.
(Interestingly, the Bible doesn't directly condemn gambling, betting, or even the lottery. It strongly warns against the love of money (1 Tim. 6:10, Heb. 13:5) and trying to "get rich quick" (Prov. 13:11, 23:5, Ecc. 5:10). The issue doesn't seem to be gambling per se, but rather the love of money and gambling as a quick, easy path to wealth, not to mention its addictiveness.)
A challenging subject
I'll acknowledge up front that this is a challenging and potentially polarizing subject. It's not my intent to stir up controversy unnecessarily, but I don't consider this a "foolish controversy" or "quarrel," either (Titus 3:9). How we steward the resources God has entrusted to us matters to God, including how we invest them.
Personal decisions about faith-based investing have mainly to do with whether it's biblically (and morally, ethically) okay to invest in a specific mutual fund or ETF just because it has a high return or low fees even if it holds a relatively small amount of equity shares in companies we might find objectionable. Furthermore, should we be willing to sacrifice that for companies or funds with higher, biblically-informed moral principles?
Other questions focus on how individuals or mutual funds screen out certain companies and only invest in those that pass their screens. What should those screens be? How reliable are they?
I need to say at the outset that I am reluctant to tell anyone who they should or shouldn't trust with their savings and investments (though I often write about wisdom and prudence in making such decisions).
You may have noticed that I never recommend a particular stock, mutual fund, or ETF. While I think simplicity, transparency, fees, and returns matter, I don't think anyone should do anything with their money that violates any moral or ethical principle they hold.
In other words, if you're against investing in a particular fund, then don't!
However, as you will see, though they may be well-intentioned, I think anyone who commands or instructs others to go all-in with faith-based funds in their investment portfolio because it is the only "faithful" (and therefore God-honoring) way to invest does so without a clear and absolute biblical warrant.
An email conversation
The quote that Jake shared with me was from a Christian faith-based mutual fund manager who wrote the following:
Do we really believe that God is indifferent about how His people earn money? If I was an investor in a publicly traded strip club operator like RCI Hospitality, as a "good steward," I am hoping that their profits increase, which means I am hoping that more people spend time and money at the strip club. Put another way, I am hoping that people ruin their lives, their marriages and store up wrath for themselves on the day of judgment so that I can make more money and donate it cheerfully to my church.
Jake noted that the stock he mentions (symbol = RICK) makes up .0012% of the Vanguard Total Stock Market (VTI) ETF— a whopping $11.65 for someone who invested $1.0 Mil. in that fund.
After reading this quote, and like Jake, I had some concerns about marketing tactics that try to make us feel guilty if we happen to hold a fund with a small portion in a company we find objectionable. I responded with the following:
Yes, he seems to be speaking with the perspective of someone who has directly purchased and owns shares of RICK. Interestingly, as a micro-cap stock with a share price of $66 [it's now in the mid-50s], that's a whopping $11.65 investment that would amount to 17% of one (1) share in the company.
Also, as you point out, to suggest that by holding VTI (and if I were to have a $250,000 position instead of a $1.0 Mil. one), my ownership in RICK would be .17 x .25 = .04 ( a whopping 4% of one share, or $2.64). It's hard to see how such a minuscule 'unintentional' investment means that I am "hoping that people ruin their lives, their marriages and store up wrath for themselves on the day of judgment so that I can make more money and donate it cheerfully to my church."
(I don't own VTI, but I did own a fund—a US Small Cap Value EFT—containing .01% of RICK. RICK is one of over 500 companies that the ETF holds. Based on the amount of my investment in the fund, I indirectly had about $6.50 invested in RICK (it would be less now), which is 10% of one share of RICK [less now since RICK is trading in the mid-50s]. I consider that insignificant, and I certainly didn't own the ETF because I was "hoping that people ruin their lives…" Furthermore, I wouldn't lose any sleep if RICK failed and went bankrupt, even if it slightly negatively impacted a fund I own.)
Jake replied that he hadn't thought about the actual share price, but he shifted the conversation to what he views as the heart of the issue:
The two (related) principles that I believe apply here (I would love your feedback) are where Paul talks about not being bound by another's conscience (1 Corinthians 10:29) and where some are convicted not to eat meat, others do not feel convicted but "each must be fully convinced" (Romans 14:1-5). Giving him, the author of the quote, the benefit of the doubt, I could say he and others may be genuinely convicted of $11 of their portfolio being devoted to adult entertainment, but they should not bind others by their conviction or passion.
I would also give the mutual fund manager who authored the original quote the benefit of the doubt, meaning that he is sincere in wanting to honor and obey God.
But, like Jake, I also thought there might be elements of legalism in the quote. Still, I don't want to suggest that someone who invests in "filtered" mutual funds is bound up in legalism. They could do so in liberty and with a "pure heart and a good conscience and a sincere faith" (1 Tim. 1:5, ESV). Here's how I explained my views to Jake:
I generally hold to a "don't do what the Bible specifically forbids" and" do what the Bible commands explicitly" approach to these kinds of things. Biblically responsible investing is not expressly forbidden or commanded in Scripture except that we should not intentionally support the exploitation of customers, suppliers, or employees. So it's something (among many others involving spending, saving, investing, and giving) that Christians of goodwill can, and do, have differing views.
Therefore, like you, I'm afraid I have to disagree with the author's attempt to impose his view on others as the only biblically acceptable approach. It's not unreasonable to invest only in biblically responsible funds. Still, I don't think someone can make an absolute biblical case that every good, wise Christian steward is obligated to do so.
An all-stock fund like VTI is an acceptable investment vehicle because it is biblically permissible (not prohibited), practical, and wise. Although VTI and others may hold objectionable companies such as RICK in their portfolios, the most crucial stewardship issue for me is that I don't directly support any such enterprise through the stewardship of my time, talents, and treasure (saving, spending, investing, and giving).
Neither you nor I would ever buy RICK, but we may own a stock fund with a little of it. To me (and this is where the personal conscience thing comes in), there is a big difference between directly investing in RICK (which would intentionally promote the things the author talked about) and the indirect and insignificant contact I might have as I diversify my portfolio across a large number of stocks across the market spectrum by investing in a fund like VTI.
Tons of people own an S&P 500 stock index fund, which includes the giant tobacco company Altria as a significant holding. Yet, most Christians would never buy individual shares of Altria stock. We don't want to invest directly in companies whose products or policies are counter to our values. But I also don't think we should feel "condemned" because some tiny holding of an objectionable company may show up in one of our stock funds.
Since we can't control our investments perfectly in this regard, we do what we reasonably can while ensuring that all areas of our stewardship are biblically aligned. And each of us has to decide where to draw the line concerning our financial decisions, but our discussion of such things should be characterized and governed by Ephesians 4:2–3: "Be completely humble and gentle; be patient, bearing with one another in love. Make every effort to keep the unity of the Spirit through the bond of peace."
Jake was very kind in his response:
Great thoughts. Very well-reasoned and gracious. I love the point below.
(He quotes my words from above about personal conscience and the difference between knowingly and directly investing in a company like RICK versus its inclusion in a mutual fund or ETF holding hundreds or perhaps thousands of companies and thinks this is what it boils down to.)
The personal conscience is really the guide here. That is fine if you are genuinely convicted, but be careful about projecting and binding others with it.
I recently received another email from Jake which read as follows:
I thought of you with this article I recently wrote regarding faith-based investing funds, given our conversation about these last year.
As you know, I'm not a fan and expect 99% of people investing in these don't bother to look at the underlying companies.
I would be interested in your thoughts!
In this article, Jake does an excellent job articulating his position. You may not agree with all of his points, but I would encourage you to read it.
I responded to his request for feedback, and he sent back his thoughts. Here is that interchange:
[Chris,] I very much appreciate your well-thought-out and detailed response. My thoughts are below.
Hi, Jake. I read your article with great interest. You did a great job covering a sensitive and complex subject by breaking your arguments down into bitesize "chunks." Here are some thoughts:
Re: Flaw #1 – They Fundamentally Overpromise and Underdeliver:
I wholeheartedly agree with your fundamental thesis here, which is, I think, that there is ultimately no way to ensure that any fund (or single company for that matter) is entirely "righteous." Consequently, it's wise to be skeptical of any claims to that effect. (And even if the companies are rigorously screened, they are still run by "sinners"—some redeemed, some not). I think there is something else that comes into play here, which is that what some Christians consider to be "sin" (such as the sale of alcoholic beverages) may not be considered so by others (especially if they purchase and consume any alcohol). Therefore, finding a fund that aligns perfectly with a person's Biblical convictions could be tricky.
Thanks! Yes, my fundamental thesis is that what you define as appropriate to invest in, as a Christian, is too subjective to outsource to a fund manager. You can't take the fund's marketing materials at face value, and most would be surprised to see the actual underlying companies that make it through their screens. Costco is just one example. There are many others. "Finding a fund that perfectly aligns with a person's Biblical convictions could be tricky"… I agree entirely. My last (and main) point about it being up to the individual's conscience per Romans 14 is what I'm ultimately getting at with these funds.
Re: Flaw #2 – Fund Turnover:
Interesting that you mentioned fund turnover; I hadn't thought about that. You implied that some companies could be removed because they are no longer appropriate (moral), but isn't fund turnover most often related to company performance? Perhaps with "faith based funds," it's both, but how would we know whether they dropped a company for one reason or another or both.
For sure. They really don't make it clear why there was fund turnover. BIBL's top holding was Costco in 2021, and they removed it in January of 2022. They then added a company that manufactures beverage containers (mainly alcoholic companies). My point is that even if you were in perfect alignment with the fund's original lineup, you have to start all over again when there is turnover to ensure you are still in alignment. BIBL had a 60% turnover, so that's a pretty tall task to say you are in such agreement with the fund's managers (who also leave and are replaced) that they can replace over half of the fund and still be in alignment. Ultimately, it's pretty silly to think that a screening process filters out what they say it will. I wouldn't be surprised if the fund managers themselves aren't reviewing every company in their fund. That's honestly probably how BIBL's expense ratio is lower than others.
Re: Flaw #3 – Guilt Marketing:
I am totally in synch with you here. As I commented in an earlier email, "I generally hold to a 'don't do what the Bible specifically forbids and do what the Bible specifically commands' approach to these kinds of things." I think we each have tremendous freedom in this area, and like you, I would view any marketing that tries to impose guilt and condemnation for not investing in "faith-based funds" as being out of step with what the Bible teaches.
(I was thinking about Jake's comment about Costco. I could imagine someone investing in a fund like BIBL that does to hold Costco while also shopping at Costco but without purchasing any alcohol. It also occurred to me that if we only shopped at grocery stores that don't sell any alcohol, our choices would be severely limited.)
A final comment:
If I were to invest in actively-managed funds of this general type, I would lean toward something like the Eventide funds (eventidefunds.com). They don't claim to be distinctly Christian (although most of the firm's principals are) or sinless perfection in the companies they invest in. There is undoubtedly a "sustainability" aspect here, but I think promoting "human flourishing" would better describe their values. In terms of investing principles, they try to find companies that "create value rather than extract it" (based on the products and services they sell) and use these kinds of high-level screens:
- Is this company meeting a critical human need?
- Are customers delighted? Do employees love their jobs?
- Are suppliers valued as strategic partners?
- Are communities better off for the company's presence?
- Is the environment being cared for and protected?
I agree with you that Eventide is probably the best of these funds—at least marketing-wise. I still think their objectives are too nebulous to execute. Honestly, Cathie Wood (a Christian) from ARKK says the same thing about her innovation fund that Eventide says about their fund. If we are talking macro, the market ultimately sorts out who is adding value and who is not in the long-term (my opinion). Not perfectly always, but at least generally. My bottom line is that you are still leaving it up to the fund manager to define which companies meet their criteria which may or may not be in alignment with what you ultimately believe. Eventide's flagship fund, Gilead, had a 20% turnover in 2021. So, again, you are back to outsourcing this decision to a fund manager and trusting his process.
As I've considered this, I think each of us has four main options:
1) Don't invest at all.
2) Choose individual stocks based on personal "faith-based" screening criteria.
3) Choose a mutual fund that screens for holdings based on criteria you agree with.
4) Invest in a well-diversified portfolio of transparent (you can know what companies they hold and in what amount) and low-cost funds (preferably, fees of less than .5%).
You probably have already ascertained where I've landed. I am not #1 as I invest my IRA in stocks, bonds, alternatives, and cash. I am also not a #2; I am not an "absolutely restrictive" faith-based investor. On the other hand, I don't hold any individual stocks. Even if I did, I wouldn't intentionally invest in any company whose core business engages in something the Bible expressly prohibits.
That leaves #3 and #4.
Because I invest in Exchange Traded Funds (ETFs), I have delegated control of how those funds invest to intermediaries—fund managers at Vanguard, iShares, Avantis, SPDR, Invesco, etc. Because so far as I know, none of the funds I am currently invested in screen holdings based on biblical criteria, I am squarely in category #4.
If I were to move more toward category #3, I would have concerns based on the "flaws" that Jake brought up in his article. I think the biggest issue is what the standard definition of a biblically sound company would be. If I invest in a mutual fund, I delegate that determination to someone else. That injects a degree of subjectivity into the decision, as what one Christian thinks is inappropriate may not be for another.
Jake's Costco alcohol example is a good one. If you put a bunch of Christians in a room to discuss the manufacture, distribution, and consumption of alcoholic beverages, you won't find everyone in total agreement. Also, many faith-based funds exclude Disney because of their social agenda, but many investors who hold them may visit Disney theme parks or stream certain Disney movies to watch with their kids (Touchstone, Marvel, Pixar, and Lucasfilm).
If you want to boycott Disney altogether, you can't watch ABC, ESPN, A&E, The History Channel, Lifetime, Hulu, Vice Media, or Core Publishing.
Taken to the extreme, you might find it very, very difficult to find a perfect company or mutual fund. For example, suppose you do not want to invest in a company that offers benefits to gay couples. In that case, you couldn't own a bond fund that invests in government securities (treasuries), as the federal government does provide such benefits.
The possibility of imperfection is so great that it would be almost impossible to find a totally righteous enterprise to invest in. (And even if its company policies are, the employees and other shareholders aren't.) This reminds me of what Paul says in 1 Cor. 5:9–10 (ESV):
I wrote to you in my letter not to associate with sexually immoral people—not at all meaning the sexually immoral of this world, or the greedy and swindlers, or idolaters, since then you would need to go out of the world.
To avoid all evil and any appearance of it, we'd probably have to stay out of the markets altogether. (I recognize that some have that conviction.) Plus, we'd never do business with any financial services firm as there are almost certainly a few "greedy, swindlers, or idolaters" among their employees.
If you put your money between your mattress or bury it in a can in the backyard, you may be out of sync with the lessons of Matt. 25:14–30 (The Parable of the Talents).
And if we put our money in a bank, perhaps to earn a little interest, the bank may loan money to companies (or individuals) whose practices you find objectionable.
What "faithful investing" means to me
I fully support anyone who wants to invest exclusively in Christian-screened stocks or mutual funds—especially if they do so because of their own strongly held convictions.
But I would like them to make sure they understand the tradeoffs involved based on the flaws that Jake discussed in his article. I don't plan on going that route, and owning .01% of a company's stock (that I would rather not) in an ETF that I have a less than 2.5% of my portfolio invested in doesn't prick my conscience.
If your conscience dictates otherwise, I respect that and would encourage you to find suitable alternative funds to invest in.
For me, "faithful investing" is one aspect of faithful stewardship. More holistically, it's managing God's money in all areas (earning, spending, saving, giving, and investing) in ways that are consistent with the love and worship of God and the biblical principles of fostering relationships, generosity, wisdom, and prudence, all based on ultimate trust and reliance on God, not money.
That's how I believe my stewardship decisions most impact the furtherance of God's kingdom. Certainly more so than if I have an unintended and minuscule investment in a morally objectionable company.
I would, of course, avoid directly investing in companies that I think knowingly and willfully violate those biblical principles as part of their core business and practices. But things become very complex beyond that. I also value simplicity, so my goal is to wisely invest while remaining true to my biblical convictions while respecting those who may believe differently than I do.