First principles of investing

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16. Ethical Investment

If you ask ten people what they think is ethical you may get ten different answers. Ethical views, by their very nature, are subjective.

The major exclusions tend to be arms, alcohol, tobacco, gambling, animal testing, environmental damage and the payment of exploitative wages in developing countries. But the list could extend almost indefinitely and a complete screening by the Ethical Investment Research Service (EIRIS)* may eliminate 60% of the FTSE 100 index.

You can screen out negative factors or adopt a positive screening process and select companies with a clear environmental policy, for example.

An ethical fund or portfolio of shares requires an appropriate performance benchmark. It may not reflect the market movements as a whole as it will hold a higher than average proportion of smaller companies which can be much more volatile than blue chips.

* EIRIS maintains a database which you can use to filter an existing portfolio or to build one from scratch, using your own selection of a wide range of criteria. EIRIS: 020 7840 5700.

1. Five steps to establish your investment goals 2. Your attitude to risk and reward 3. The major asset classes 4. Which type of manager? 5. Your investment assessment kit 6. Is past performance a guide to the future? 7. Easy access deposits for emergencies 8. Fixed income products 9. A rising income 10. The choice of collective equity funds 11. Pensions and ISAs 12. Tax efficient but may be very risky 13. Selecting your shares 14. Your stockbroker 15. Buying your shares 16. Ethical Investment 17. When to sell 18. How to keep your portfolio on track 19. Do you need an adviser? 20. Conclusion

• First Steps in Shares
• How to Read the Financial Pages