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Christian Investors: Should You Avoid Regular Mutual Funds?

Christian Investors

Webster’ s Dictionary defines a blind spot as “an area in which one fails to exercise judgment,” and Christian investors know that, throughout history, many Christians have had glaring blind spots. Take Martin Luther and John Calvin, for example. These two heroes of the faith were engaged in practices that are viewed as objectively immoral by today’s standards. While it’s easy in hindsight to see the ways in which these men and women failed to conform to God’s will, blind spots by their very nature can be extremely difficult to spot in the moment. We’re powerless to change the damage done by Christians in the past, but there remains a large blind spot in the lives of many Christians today: their investments.

There is no shortage of voices in the world of Christian finance. There are articles, books, and podcasts that detail the dangers of debt, the mandate of giving, and the importance of managing money God’s way. There’s even a possibility that you’ve heard someone mention the dangers of investing in especially sinful companies. But a quick look at the average Christian’s investment account will reveal that our investments seldom align with our values.[1] Many trusted Christian voices in finance know this but will tell you that it’s not something to worry about.

The fact of the matter is most Christians are currently invested in mutual funds that aren’t screened according to biblical principles (aka “regular mutual funds”).

Yes, most Christians are invested in regular mutual funds, and yes, faithful Christians should avoid them.

Don’t Invest In Companies That Support Abortion and Other Sins

If you’re not paying attention to where your money is going, you could be helping fund companies that support abortion and “sin stocks” (a category of investment that refers to companies that make a significant portion of their profit from alcohol, smoking, or gambling). If you’ve read the Demand Christian Portfolio Whitepaper, you know that Christians should be wary of industries beyond typical “sin stocks”. The alcohol, tobacco, and gambling industries make up just 2%, 2%, and 1% of the total stock market respectively. It seems like an insignificant or even avoidable chunk, right?

Unfortunately, 40% of the S&P500 is invested in companies that support abortion, 21% to the promotion of violence, language, sex, or drugs through the entertainment industry, and 18% is engaged in the promotion of pornography. Taken all together, 64% of the broad stock market is invested in companies engaged in unbiblical practices.

Unless your portfolio is specifically tailored to avoid these sin stocks, it’s likely that the amount of your investments in those industries is pretty much the same. While most Christians would hesitate to purchase stock in Philip Morris (the world’s largest tobacco manufacturer), many Christian financial advisors will tell you it’s different if you’re merely invested in a mutual fund or an ETF. In fact, one of the most famous Christian financial gurus says that he’s “not concerned” about investing in biblically-responsible mutual funds that aren’t screened according to biblical principles. According to him, “you’re actually not harming or supporting any of these companies if you happen to have a mutual fund that invests in their stock.”

Unfortunately, most Christians are willing to simply trust their financial advisor rather than analyze the argument. Upon closer inspection, that argument is as false as my grandma’s teeth.

Christians should be concerned if they’re invested in regular mutual funds for three reasons:

Your Dollars Enable the Mutual Fund to Invest in Sinful Companies

The most common excuse why Christians might invest in regular mutual funds instead of faith-based mutual funds:

‘It’s okay to be invested in sinful industries because you don’t own the actual stocks’. A close inspection at this reasoning reveals that this is intellectually dishonest.

Some financial gurus compare investing in a mutual fund to purchasing a used car. The argument is that when you buy a used Ford pickup, Ford doesn’t profit, so in the same way, when you purchase a mutual fund, the companies included in the fund don’t benefit either. It is true that no revenue from the sale of a used Ford goes directly to the company. Ford gets its revenue when its cars are sold in the primary market, not the secondary market. Unfortunately, this does not translate to mutual funds.

The average new car buyer doesn’t purchase a car solely based on its resale value. The original owner of the Ford pickup most likely didn’t purchase it only to sell it 10 years later. Mutual fund providers, on the other hand, only purchase stocks in order to market and sell their funds. For example, let’s say that an investor puts $1 million into a mutual fund. That mutual fund now has $1 million more to purchase company stocks. Without that investor’s money, the mutual fund wouldn’t need to make new stock buys. On a small level, this isn’t a big deal, but on a large scale, this is game-changing.

The largest mutual fund on the market, The Vanguard 500 Index Fund, has a whopping $286 BILLION of investors’ dollars going to real companies. Since this is an S&P 500 Index fund, Vanguard invests that money in all companies in the S&P 500. If every investor sold their investment in this mutual fund, then it would have $0 to invest in the S&P 500. This means that Vanguard would have to sell approximately[2]:

  • $115 billion worth of companies engaged in the abortion industry
  • $60 billion worth of companies engaged in sinful media
  • $52 billion worth of companies promoting pornography
  • $6 billion worth of companies in the alcohol industry
  • $6 billion worth of companies in the tobacco or cannabis industries
  • $3 billion worth of companies in the gambling industry

What a HUGE difference avoiding these mutual funds could make to ensure your Christian values are aligned with your investment portfolio!

Investing in a mutual fund isn’t like buying a used car. Ford doesn’t’ profit from the average resale. When you buy a mutual fund, on the other hand, you are quite literally paying that mutual fund company to invest in sinful stocks for you.

You Want Those Sinful Companies to Be Profitable

When you buy a mutual fund, you’re hoping that the fund will increase in value. For that to happen, the company stock within the fund must also increase in value. If a mutual fund you own appreciates 10%, the companies within that fund are now worth 10% more in total. This means that:

If you own a regular mutual fund, you want companies engaged in sinful practices to be profitable.

If you’re an average mutual fund owner, 64% of your money is invested in companies engaged in unbiblical practices. While you may want to see many of these industries decline on a moral basis, you would lose 64% of your investment dollars if every company supporting those industries went bankrupt. This is a real conflict you encounter when you invest in regular mutual funds: you become financially tied to causes that are contrary to your beliefs. If a Christian invests in a regular mutual fund, then their investments are at odds with their beliefs.

These Sinful Companies CAN Be Avoided

The final argument that Christians use to justify their investments is that it’s simply impractical to do otherwise. The guru who gave the used car analogy ended his argument by saying, “if you start boycotting companies you don’t agree with, you pretty much rule out even having a bank account.” While this may have been true 30 years ago, it simply isn’t the case in 2020. There are many tools that allow Christians to see where their money is being invested[3] and there are many funds that entirely avoid companies engaged in the mentioned unbiblical practices.

‘Demand Christian’ is a fully diversified portfolio that only includes funds that have been screened according to biblical principles. This portfolio can be customized according to your risk tolerance, are managed by like-minded believers, and designed to be a comprehensive investment solution.

Unfortunately, like so many faithful Christians before us, our natural tendency is to take the path of least resistance in order to justify ignoring our blind spots. It makes sense as we have busy lives! But investing in regular mutual funds usually means you are invested in sinful industries and profit from companies engaged in unbiblical practices. So many faithful Christians could have removed the blemish next to their name if they had a remedy for the blind spots in their life. Don’t ignore your blind spots: divest from sinful industries today.

[1] For more information on this, check out our Christian Portfolio Whitepaper

[2] Data taken from Evalueator at https://www.christianinvestingtool.com/ and is based on an average of the two largest Total Market Index ETFs.

[3] Our favorite free tool is Evalueator at https://www.christianinvestingtool.com/

This report is a publication of Demand Wealth. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), or product made reference to directly or indirectly, will be profitable or equal to past performance levels.

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