Me, I’ve always been a defensive player by nature. I was never the one sprinting down the court for a fast break to the basket. But I was usually the defensive player who intercepted the pass and got it to that point guard for the fast break. I’m finding the same is true in tennis these days. I am MUCH more comfortable as a baseline player reacting to the return rather than charging the net to take the ball out of the air and putting away the point.

Many of us take the same approach to our financial goals.  We decide to wait until things “calm down” in the markets or until the kids are through college to really address our longer term needs.  We keep more than we should in cash in the hopes that we’ll feel more comfortable down the road with investing it.  We assume that we can start saving for retirement after we’ve paid for college educations for our kids.  Essentially we are on the defensive, continually reacting to the latest financial news or waiting for the “ball” to get closer before we make a move.  

But lately I’ve been trying really hard to go on the offensive. Standing closer to the net is out of my comfort zone, but my partner and I are winning more points and more matches by doing so.  We are, in fact, accomplishing the goal we set at the beginning of the season.  Such a change in behavior doesn’t come without risk – I’m petrified of being pummeled by a line drive.  Or embarrassing myself by having my overhead smash sail out of the court.  And sometimes both of those things actually happen.  But what a thrill when our offensive play pays off in a win!

So what exactly can you do to be more of an offensive player with your finances? 

1. Identify your shortest term goal. 

What may come to mind is fixing the roof or taking that anniversary trip overseas.  But your shortest term goal is really about protection.  Even in tennis, it is a given that you would  like to avoid a match-ending injury.   So, take a few minutes and review your insurance coverage.  All of it – life, disability, homeowners, auto, umbrella…You don’t want an accident or illness to prevent you from achieving all of your other financial goals in life. 

2. Identify your longest term goal. 

 Is it passing on a certain amount to your kids or living well in retirement?  Very few people actually take the time to articulate where they would like to see themselves in 10, 15, or 30 years.  Put some numbers around it.  Then work backwards to figure out the steps required to get there.  If I wanted to win 4 out of 5 matches this year, I needed help – the right partner, the right coach and a change in the way I play.  But I also had to admit that I couldn’t get there on my own.   I had to try some new ways of doing things to figure out what was really going to work.   For many folks, that’s exactly what you are going to need to accomplish a secure retirement. 

  3. Train more. 

 This is really about education.  You don’t know what you don’t know.  Find out what you are missing.  Increased knowledge of the markets or of tennis gets us more comfortable with changing our game.  There are experts to help you, but when match time comes, it’s really up to you and the decisions you make that dictate success.  Coaches know this all too well – what works for one player may not work for another. 

4. Pace yourself. 

Unless you’re over 90,  accomplishing that longest term goal is going to take some time.  The winner in a marathon isn’t usually the fastest sprinter in the race.  If you chase the markets-investing when it’s up and sitting on the sidelines when it’s down, you are trying to sprint your way to victory in a very long race.  Don’t get me wrong, if you are trying to invest your excess cash and even making new investments on a regular basis, there will still be times when you won’t be out front in the race.  In fact, these last three years many of us have felt like we are running in place.  But the finish line is getting closer.  So what if we haven’t had our “best times” the last few years – we still have more than where we started.  Or should…

5. Learn from your mistakes. 

Why did that shot go into the net?  What could I have done differently?  In investing and in planning, there are going to be a few hiccups as you get better.  Many tennis matches are still won, even when we’ve made a few bad shots.   I can’t imagine giving up on tennis entirely just because I played badly one match.  Nor should you give up on investing or planning your financial future just because your investments went down this year.

6. Celebrate your victories. 

There will always be another match, a tougher opponent, a new hurdle to overcome.  All the more reason to enjoy the accomplishments.

Now go attack the net!

Well, that’s what it’s like right now trying to come up with a safe place to park your investments while the market declines. Nothing looks good. With inflation at 3% and money market funds well below that, even cash looks like it needs a good scrub.
I don’t know about you but I could use a little irrational exuberance about now…

 
So what should you do? In past communications I’ve told you to sit tight, make sure you have enough cash on hand and have faith that this too shall pass. But, as Keynes once said, “In the long run… we’re all dead.” Who wants to wait that long for the market to turn around?
Here’s what I think about when I contemplate a lingering world-wide recession:

1. Every single one of us is at theoretical risk of losing our job or having our income cut. No matter what we do and no matter how long we’ve been doing it. Have you planned for that? If you don’t have an emergency fund of 3-6 months of living expenses sitting in the bank, you need to look at where you are spending your money and make that a priority. Some would argue 3-6 months isn’t enough time to find a new job. If you feel that way, make sure your emergency fund reflects your views.

2. What if the market doesn’t return 6-8% over the next few years? Any debt (credit cards, student loan, auto or home loans) that is charging an effective interest rate higher than the 30-year Treasury rate (currently 3.75%) is a candidate for payoff or accelerated pay downs. This doesn’t mean you have to pay off your mortgage tomorrow, but understand your true cost of borrowing. It’s much easier to live within your means when you don’t have any monthly payments.

3. Consider alternative investments in moderation. All that glitters is not gold and even gold is looking a little lackluster lately. Don’t rush to diversify out of plain vanilla stocks and bonds without understanding the risk and potential return of commodities, currency ETFs and managed futures, to name a few. They certainly have a place in many portfolios, but where do they fit in yours?

4. Understand the international piece of your investment portfolio. You may have 20% “international” but is it all in Europe or all in Emerging Markets? Is your international allocation well-diversified globally? When is the last time you looked?

5. Keep saving. Keep putting money into retirement accounts, 529 plans, even your savings account. If the stock market stays flat the next few years, at a minimum this is money you haven’t frittered away that’s now available for your future. And did I mention the old adage, “Buy low, sell high?” You may be buying low for awhile…but it’s still a good plan.
As for wearing that dirty shirt in the basket, you do have a couple of other choices: you can go shopping for a new one or just do a little washing instead.

 Financially Fit After 40 welcomes life coach, Melinda Engle, MBA as a guest contributor.  Check out her simple but effective exercise for getting your spending under control.  

 Unfortunately, there is no such thing as a money tree where we can fill our savings and retirement accounts, but you do have options for stretching what you already have.

First, create a budget of where you think your money is going each month.  Then, for 30 days, keep track by recording all of your expenses.  Did you spend money only where you were prepared to spend it?

Now, create a budget with where you want your money to go each month.  Include a meal plan to ensure you have enough to eat and meals ready when you need them.  As you go through the second month, your budget by your side, make sure you don’t spend anything that isn’t already budgeted.  Of course, this means you may need to include a miscellaneous category for unexpected, but necessary expenses. 

Each time you pass up an opportunity to make an impulse buy, record it next to your budget.  You will be surprised how much you save yourself at the end of the month, how much further your money went, and you will be empowered by having your money go to the things you really want it to go to!

            Once you’ve mastered your current spending, this exercise can be an excellent tool for reducing debt as well.  Extra money that wasn’t spent on impulse buys or meals out due to poor planning can now be used to pay down those high interest rate cards.  If you are debt free already (congratulations!), use this to increase your emergency savings.  Ideally, you should have roughly 4-6 months worth of necessary household expenses saved in easily accessible accounts, depending on your situation.

Peer pressure—good or bad, subtle or obvious—comes with being in a social network. Everyone participates in social networks, even people who are never online. Your network consists of your family, friends and acquaintances. How strong is their influence, and can they impact your financial fitness or money management habits?

Read on for more insight from our new contributor, Michael Goldman of WealthGathering.com -  

Who’s Influencing Us

Harvard researchers Nicholas Christakis and James Fowler, authors of Connected, have done fascinating work examining social networks and their impact. Their book describes how we’re so completely embedded in social networks that people we don’t even know are influencing our behavior.

“Behavior” is a broad category. In an eye-opening video, Christakis explains how social contagion from human networks shows up in our eating habits, political behavior, attitudes toward the less fortunate, emotional state and—of course—our level of financial fitness.

We’re in contact with friends and family regularly, so a lot happens through influence and imitation. We may not realize, however, that people at two degrees of separation (our friend’s friends) or even three (our friend’s friend’s friends) also affect our behavior. Daniel influences his friend Ashley, who affects Tyler—then I imitate Tyler. In this example, Daniel—whom I don’t even know—impacts me without my knowledge.

Some things spread across a social network more easily than others. Eating, drinking and smoking habits of friends living hundreds of miles away seem to have as much influence as the habits of friends next door. However, as you’ll see, how strongly someone affects us depends on whether the person is a close friend or family member, or just an acquaintance.

Online Social Networks

Remember life before Facebook? Online social media connects us to a much broader network of people than we’d normally be. This leads to the somewhat scary question of whether online networks multiply our social contingency and the number of friend’s friend’s friends who can influence us.

In an interview with Wired magazine, Christakis explains online network research he conducted as a follow-up to Connected. Apparently, most Facebook “friends” are really just acquaintances. We’re less impacted by behaviors of acquaintances on Facebook, just as we are with people we know only on a surface level in our off-line lives. Evidence shows that our handful of real friends on Facebook can influence us, but our many distant Facebook connections have much less impact. Social media probably enhances the impact your friends have, not because you’re connected to more people, but because you have more exposure to your real friends’ behaviors.

Networks and Wealth

In online social interactions as well as day-to-day in-person interactions, there are some behaviors we see easily. Money isn’t often one of them. If we see financial behavior, usually it’s in the bad-example category. With money, what’s traveling across the social networks is lopsided.

For instance, on Facebook you’ll see pictures of that exotic, expensive vacation a friend just took. You’ll learn that your best bud living a thousand miles away bought a fancy red sports car (picture included). However, your friends are unlikely to brag about increasing their 401(k) contribution (statement included? NOT!). Few friends will point out the sale they passed up to save money.

What to Do?

Good or bad, your money management practices are influenced by your friends and friend’s friend’s friends. Here’s how to make others’ influence strengthen, not destroy, your wealthy habits:

• Increase your awareness of the day-to-day goings-on of your strong connections and close influencers to see whose influence you want.
• Create a “financial friends network” of good role models for wealthy habits, and discuss your financial fitness concerns with them.
• Share your savings goals with a select group of friends using a tool like SmartyPig.com.
• Hide status updates from Facebook acquaintances who are obviously extravagant spenders.

Choosing the right actions is easier with positive peer pressure behind you. Take control and leverage your social network. While you’re at it, be a good financial role model for those around you too!

I’ve noticed two trends over time.  One is that more and more people aren’t expiring until they are 90-something, which is rather encouraging, don’t you think?  The other is that most of those approaching the century mark never really “retired”.   Oh, they may have worked at a career for forty years or so, but the list of activities they reveled in after they quit their career job makes for some inspiring reading.  Retirement is such an old-fashioned word, isn’t it?

Perhaps this is why many people don’t bother to use any of the retirement calculators on the web today.  They don’t see themselves as retiring at any given age, so…how do get started when the first question most of those online tools ask is –“when do you want to retire?” 

Here’s my proposal (and then we’ll move on to a review of some of those tools): Let’s call it a Flexibility Calculator.  When do you want to have some flexibility in your schedule – where you live, what you do with your time?  (There’s another two word phrase I could use that also starts with an F…but that’s only when I’m having a bad day…)

Whatever you want to call it, here are a few tools that can help you figure out when you can enjoy more FREEDOM, FUN or FLEXIBILITY in your day. 

AnalyzeNow.com/Free Retirement Planner

Run by a guy named Bud (really), this is a site you can noodle around for a long time.  Bud is very informative in his guidance, isn’t selling any investments and has put a lot of thought into his calculators.  The Retirement Planner helps you decide how much you should be saving for retirement or can spend if already retired, when you may be able to retire,  how allocation of stocks, bonds and cash may affect retirement, and whether new savings should go into taxable, deferred-tax or tax-exempt investments. The Free Retirement Planner also has a unique option that lets you use your assumptions with actual historical data to see if you would have had enough money for retirement way back in 1965.  And you can download & save the results in an Excel spreadsheet.

Dinkytown’s Retirement Nest Egg

Dinkytown is another site where you can find lots of great financial calculators.  I like this one in particular because it answers the question I get all the time – “What’s my NUMBER?”  How much of a nest egg do I need to have before I start spending it down?  Having an end goal is usually pretty motivating for people.  Of course, figuring out how much you can spend each month in retirement is a lot more fun than figuring out how much you have to have saved (yikes!) by the time you get there…We like it so much we included it on our own site.  Find our your NUMBER here.

FINRA Retirement Calculator

Even the regulators are getting in on the calculator tools.  I like this because it is super easy to complete and gives you a number you need to save each month to reach your retirement income goal.  It may not have all the bells and whistles, but if you are looking for a quick idea of how much to chunk away in that 401k or brokerage account, this is your best bet.

Of course retirement calculators are a dime a dozen on the web and every major brokerage, bank and insurance company has one.  Chances are if you used the same assumptions on ten different sites, you’d get ten different answers as well.  But isn’t it time you figured out when YOU can have some flexibility?

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It’s not enough that we have to psych ourselves up for “The Talk” with our pre-teen kids these days.  More and more of us are also having to have a different kind of Talk with our aging parents.  This Talk (with a  capital “T”) actually involves more asking than telling on our part.  As our parents age we find ourselves wondering if they are really prepared for end of life matters.  Do they have a will?  What about long term care insurance?  How much is the monthly mortgage payment?

According to the Employee Benefit Research Institute, only 40% of adult children know their parents’ income amounts.  That leaves a majority of us wondering if mom and dad are going to outlive their resources or be able to take care of increasing medical needs as they age. 

If your parents are still in good health, living active lives, chances are they don’t necessarily feel the need to share their financial situation with you or your siblings, which can make initiating a discussion uncomfortable.  But when is the right time? When one parent gets sick?  After one has died?  In most cases, the best time, in fact, is right now.  So here’s what you need to ask:

Do they have a will?

It’s surprising how many people don’t have a will, thinking everything will pass smoothly to a spouse or children.  But who gets the heirloom brooch that was Aunt Millie’s?  Having a basic will in place can ease the burden of dividing assets among children and enforce any charitable giving wishes.  While you are on the topic, go ahead and ask about other basic estate planning documents as well.  Do they have a durable Power of Attorney, giving you or a sibling authority to act on their behalf if necessary?  What about trusts, health care directives and living wills?  If the answer is “no” offer to set up an appointment with a local estate planning attorney.

What are their long term care/end of life wishes?

 This is where a living will becomes important.  Do they want to be on life support or not?  Would they prefer to stay at home as long as possible if they become incapacitated or are they all set to move to assisted living?   Do they have long term care insurance?  Getting parents to articulate their vision of end-of-life care can be difficult.  Better to find out now if their idea of assisted living is to move into your in-law apartment…

Who are their advisors? 

Do they have an estate planning attorney, a financial advisor, a tax accountant?  If so, ask if you can arrange a joint meeting between you, your parents and the advisor so you can understand their situation a little better.  A good advisor will welcome adult children, as the risks of misunderstanding by elderly clients increase with age.

Do they have a list of assets and expenses?

While few parents prepare balance sheets and income statements, more and more do have some system in place to keep track of their expenses.  Ask them to explain where they have accounts and how they pay their bills.  If the system works for them, don’t change it!  But this is often where aging parents start to struggle and because it can happen gradually, they often don’t ask for help until there is a financial crisis. 

Where are the documents?

I can’t tell you how many times I’ve heard “I know they had an insurance policy but I can’t find the documents anywhere.”  Have them tell or show you where the important documents are kept.  These could be not only insurance policies, but the will, durable powers of attorney, car titles, the deed to the house or even the passwords for online access to bank accounts.  If they are stuffed in a drawer along with receipts from 1972, you may want to suggest a safety deposit box. 

For some parents, asking these questions won’t be easy.  Nor will it be accomplished in one conversation.  Ease the way with a difficult parent by using humor and telling stories.  If your best friend had a nightmare of a time sorting out her deceased father’s affairs or a colleague at work had to find Alzheimer’s care for his mother, tell the story.  It may just open the door to a more personal conversation.

If you took out a mortgage when you bought your house you were required to have homeowner’s insurance.  The bank wasn’t about to loan you money without knowing their asset was insured.  But if that was several years ago and you can’t recall the name of the agent who sold you the insurance, your coverage might be out of date.

If you’re like me, reading about insurance may put you to sleep.  But, grab a cup of coffee and stay with me for a few paragraphs – this is important.

A Little Background

Homeowners insurance is really two types of insurance rolled into one.  It has property coverage, which covers your home, its contents, loss of use and even your personal possessions that may disappear away from home.  But it also has liability coverage for accidents that can happen to other people at your home.

There are also different levels of coverage.  Basic (HO-1 and 2) list the specific “perils” that are covered.  In most cases these will NOT include floods, earthquakes, war or even termites.   A more comprehensive form (HO-3) covers “all risks” but specifically lists those it excludes (floods, earthquakes, war, even termites).  So the first question you should ask is what coverage do I have and what’s not covered? And for those perils not covered, how likely is it to happen? PLEASE NOTE: over 30 different states have had earthquakes in the last 100 years…

The general idea is that homeowners insurance should cover what it would take to replace your house & its contents.  Which means if you haven’t figured out what all that is worth lately, you may be underinsured.

So What Can You Do?

First, of course, is to determine the current value of your home and see that the Dwelling piece of your coverage is adequate to replace it.

If you have other structures on your property, these are also covered, so make sure you know the value of those buildings as well.

Since the Personal Property coverage can range from 50%-70% of the Dwelling amount, this is where you should spend some time with your calculator.  Walk from room to room snapping photos or videos of your furniture, TV, computer, IPAD, espresso machine.  Make a list of each room’s contents.  Keep receipts for the big- ticket items.  MOST IMPORTANTLY-store all this information outside of your house!

Once you’ve done that, add up the values and check it against the formula in your homeowner’s policy.  Are you really going to be able to replace everything of value?

If not, consider adding what are called Riders to your policy:

Most policies limit loss of currency to $100, so if you typically keep a wad of cash stashed under your bed, make sure you have a rider to replace it.

Jewelry is another typical item that requires a separate rider.  Chances are even the diamond wedding ring would need to be covered separately in order to replace it.  Your insurance company may require an appraisal for individual items of value before they will write the rider, but it’s well worth the cost.

Many policies now offer a computer rider- to cover all that technology we can’t live without these days.  And if you have a home-based business, it’s critical to understand what’s covered by your existing homeowner’s policy and what’s not.  Chances are you may need a separate business policy to replace your home office and its contents.

Other riders that can be added are additional theft coverage, boats or recreational vehicles you park at your home, sewer and drains backup and even coverage for landslides or ground collapses.

The cost of many of these riders is minimal compared to what you’re protecting.

If you last looked at your homeowners coverage when chintz was a popular chair covering, now’s the time to update your protection (and maybe even your couch).

If you are ready to take advantage of your new saving habits, there is a tried and true way to do this:   Dollar Cost Averaging.   It isn’t new and exciting, but many a millionaire next door has proven its success.  The best part – you don’t need a big stash of cash to get started.

Dollar Cost Averaging (DCA)

The principal behind dollar cost averaging is this:  You put the same amount of money into the same investment on the same day each  month.   Those months when the investments’ price is going up, your set amount might not buy very many shares.  But when the investment’s price dips (as they all do from time to time), you get to buy more shares at a cheaper price.  Guess what?  When the price goes back up, all those shares you bought cheaply will have made you some money.  Those shares you bought when the price was high will look good, too.

There are a few reasons to invest this way:

1. It takes the guesswork out of trying to predict what the stock market is going to do(aka timing the market).  As long as you feel good about this company, you DON’T CARE what the stock market is doing day to day.  In fact, you are celebrating when the market is down on your investment day, because you are getting to buy more shares of a company you think has great long term prospects.  And you are celebrating again when the market is rallying because all your shares are more highly valued.  Isn’t that great?

2. It creates a disciplined approach to building wealth.  You are now on a path to save and invest regularly, building wealth one month at a time.  Yes, we have all read about those hot stocks that made someone rich overnight.  But for most of us, it’s going to take a working lifetime to accumulate our wealth.

3. You can do this for as little as $100 per month.   In fact some mutual fund companies, like T Rowe Price,  will set up a DCA for as low as $50 per month.  You don’t need thousands of dollars to get started or to continue your dollar cost averaging plan.   So, no excuses!

Some Do’s:

1. Do Your Research.  Make sure you are picking a stock or mutual fund (yes, you can DCA into either one) that you feel has strong long term growth potential.   Go to your local library – they will often have a ValueLine subscription.  Or get an online subscription to Morningstar.  If you already have a brokerage account, find out which stocks or mutual funds they offer for DCA – they can also provide you with their own research opinions.

2. Start with a monthly amount that won’t break your bank.  This is money you won’t miss on a monthly basis.  Ask your broker or mutual fund company for their minimum DCA amount.  Don’t have an investment account yet?  Check out ING’sSharebuilder to get started with an online account.

3. Do work up to a DCA approach into multiple stocks across industries.  If you are doing a DCA into a mutual fund you will have some diversification built in, but if you are buying an individual stock, you want to eventually own five or more to reduce your dependence on one performer.

4. Commit to a DCA program of AT LEAST 12 months.  It takes time to build wealth and see the results of your efforts.

Some Don’ts:

1.  Don’t wait for the price to go up or down, nor vary the amount based on how much is in your savings account that day.  Set it up for the same day, same amount, same stock – good times and bad.

2. Don’t stop it when the market takes a nose dive.  If you still believe in the individual company, keep investing.  Remember, in a down market you are buying more shares, cheaply.

There are some market pundits who say Dollar Cost Averaging is dead.  They will show charts and graphs proving that if you had done a DCA over a certain period of time instead of putting a lump sum into the market on a certain day you would now have less money.  And they would be right.  But you know what they say about hindsight….Who knew that was THE day to invest in the market?

This approach is about BUILDING wealth.  Steadily, consistently, with discipline over time.  It’s about creating and strengthening good money behaviors.  When you’ve done this for ten years and see your accumulated balance, you won’t care that you missed the best day in the market  in 2011.

Already a DCA investor?  Let me know how it’s worked for you!

So much for my New Year’s Resolution. Committed to being on time this year, I’m just now getting around to this post.

If you too have already started backsliding on your own resolutions, consider this: Experts say it takes 21 days for a new habit to form. Personally, I think it takes at least 3 months to change your behavior when it comes to personal finance. No wonder most people give up on saving more money or spending less!

So, how do you make significant financial changes in your life that will stick? Ironically, a New Year’s financial resolution starts with your desired long-term result, not your current behavior. Figure out how to change what you are doing now AFTER you ask yourself the following questions.

Assume it is 10 years from now:

1. Do I want to be living in the same place?

Maybe your goal is to live in the same house but not have a mortgage payment. Figure out how much extra per month you would have to pay to get it paid off by a certain date. Or maybe you really want to retire to a warmer climate – how much is it going to take to live there with the lifestyle you want? Will you have enough equity in your current home to fund a new one in your retirement locale? If you’re not sure, maybe you need to focus on paying off that home equity line or refinancing that mortgage.

2. Do I want to be doing the same job with the same company?

My bet is most of you might answer with a resounding “no” to this question – unless you’re self-employed. So…how do you make that career change affordable? Maybe your goal should be to stockpile some extra emergency money so you can take some time off to look for a new job or reduce your salary in a new field. Maybe your spending habits need to change now so you have more flexibility around salary later.

3. Where will my kids be?

Chances are at least one of them will still be in college. Don’t assume financial aid is going to pay their way at the college of their choice. Start a 529 plan or some other savings account to help ease the burden of escalating tuition costs.

4. Where will my parents be?

If they might be with you, better start planning now! If you have no idea what their financial situation is to take care of themselves as they age, your goal should be to sit down and have a candid conversation with them. Make them show you the money. Be forewarned – you WILL be the “parent” of at least one of your parents one day and you want to be prepared.

5. What happens if I’m dead?

I know, I know. No one wants to contemplate this in the next ten years. But will your loved ones have enough money if you were to die tomorrow? If you don’t know, make a resolution this year to figure out if you need more life insurance. If you’re self-employed, you might also need disability insurance. Don’t assume you won’t die. And while you’re at it, make sure you have a will along with other basic estate planning documents in place.

Look at it this way – if you get this done now and you don’t die in the next ten years – you can come up with something else to work on in 2021!

Socially Responsible Investing, or SRI, has been around for a long time now.  Its definition has broadened as it has also become more clearly defined, but if you are going to take an SRI approach to your own portfolio, here are some factors (or screens) that many of the well-known SRI managers use to evaluate companies:

Corporate Governance & Ethics

Oh if we had a penny for every company we thought was ethical….only to be proven wrong.  Yup, this is a hard one to ascertain but more and more research services are giving corporate governance a grade on the analyst’s report.   Is company management aligning their interests with you, the shareholder?  How much are they paying themselves?  Are they dealing with major compliance or legal issues in their industry?

Environment

What exactly is the company’s impact on the environment?  Are they actively trying to improve that impact?  If the EPA has set up camp outside corporate headquarters, that may not be a good sign…

Workplace Safety

This might be one screen where you’ll need to rely on the experts, but if the company has a record of frequent employee accidents or a lack of established safety programs, I’d look at another candidate.

Product Safety

This is where all those beer & tobacco companies get excluded.   Is the product safe for the consumer?  Do they use animal testing?  Beware of being too strict here – some companies who are doing a lot of good have to use some animals for testing, but have very specific standards for humane treatment.

Human Rights

Pretty basic, huh?  Maybe here in the U.S. it’s a given, but what about overseas?  Are they in cahoots with governments that ignore basic human rights?

Diversity

What’s it like to work there?  Are they a country of old men or a Coca-Cola commercial?  Everyone seems to have a diversity policy these days, but are they committed to promoting women & minorities?  A quick peek at the Senior Management photo in the Annual Report can give you a clue to their diversity, or lack thereof.

Community

Is the company a good corporate citizen in their local community?  Funding local events is a start, but are they actively trying to help those who are underserved?  Do they encourage employee participation?  Again, many companies pay lip service to community support, but what are they really doing and is it with money, time or both?

Some of these screens may be more important to you than others – and that’s okay.  It may take some digging through analyst reports, 10-Ks and proxy statements to get a feel for the answers.  And many people start their SRI investing through mutual funds that do the research for you.

But here’s the most important screen of all:  Scrutinize those performance returns just as you would any other stock or mutual fund; after all – you still want to make some money on your investment, right?