How to build a rock-solid ethical portfolio in uncertain times

Think cash, CDs, and government bonds, for a start.

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    'I recommend cash or cashlike vehicles as the most rock-solid thing for people to have their money in right now.' – Doug Wheat, High Ridge Financial Planning
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    ‘We have a program ... where, instead of a CD, one can choose an investment for as low as $1,000 and you can choose the interest rate ... anywhere from 0 to 3 percent.’ – Eric Packer, Progressive Asset Management
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Volatile markets can cause even the most bullish investors to pull in their horns. So these days investment professionals who help individuals build ethical portfolios are crafting safe harbors in the storm. Recently, the Monitor's Laurent Belsie discussed this subject with Eric Packer of Progressive Asset Management, a socially responsible investment broker, in Wellesley Hills, Mass., and Doug Wheat of High Ridge Financial Planning, a fee-only advisory firm in Northampton, Mass. (The views expressed here are for informational purposes and do not represent an endorsement by The Christian Science Monitor.) Eric, what's the most conservative social investment you're recommending now?

Mr. Packer: The one that we have is actually something that most people are familiar with, which is a CD – a certificate of deposit.

Sounds pretty rock-solid.

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Packer: Pretty rock-solid, FDIC-insured, and we offer one which is unique, where you have the combination of the security of a CD but the return is based on a percentage of a clean-energy index. So if you hold that CD generally for a five-year period, you know that all of your principal will be returned to you. Yet part of the money is going into a portfolio of clean-energy investments, so you're getting the chance to potentially grow the assets.

What are you recommending, Doug?

Mr. Wheat: I recommend cash or cashlike vehicles as the most rock-solid thing for people to have their money in right now. ShoreBank, you may be familiar with, is a socially responsible bank and they now have a high-yield online savings account, which has a 3.5 percent yield and is comparable to what you can get at any large bank like ING Direct or HSBC. With the difference being that the money that ShoreBank gets goes to affordable housing and other social projects.

Are your clients more worried than usual?

Packer: People are hearing the news about the mortgage meltdown, credit crunch, energy prices. So there's certainly an interest of people saying: How can I preserve part of the principal that I have?

Wheat: Like Eric's, clients are hesitant to open up their statements. They don't want to know what is happening and, in a sense, have a blinder on to the market. In part, that's good.... Not opening your statements prevents the knee-jerk reaction that maybe some people might have. But in general, I tell all my clients that it is important to maintain a good asset allocation, both today when the times aren't as good as well as when the markets are doing really well – and that we need to try and keep their costs low and we need to rebalance their portfolio on a regular basis to make sure that we're buying low and selling high instead of selling when things are down.

In uncertain times, do less of your assets go to stocks?

Packer: Absolutely. And as you know, the other things that we take a look at [are]: The age of the person, the years toward retirement, and also the personal comfort level with risk.... So it's really a balancing act, we find.

Are there other conservative strategies that investors with this social perspective should think about?

Wheat: Government bonds are sometimes one of the best things for people to do in conservative times. Often socially responsible investors tend to overlook government bonds as an investment vehicle. But most of the clients I deal with are very comfortable investing in Treasury securities and certainly in municipal bonds as well. Particularly for clients who have higher income levels, municipal bonds – municipal bond funds – depending on what state they're in, are really effective devices. From the mutual-fund perspective, a number of funds across the asset classes that still are doing very well I like to recommend. Parnassas Equity Income Fund is one of them. And TIAA-CREF Social Choice Fund is another one I recommend people have to get the broad-based equity exposure for growth long-term.

The equity-income fund would be fairly conservative, but Social Choice?

Wheat: I wouldn't label it a conservative choice. It's a broad-based choice. It's essentially trying to replicate the Russell 3000, which includes both large companies and small companies, and I think gives investors a good representation of both growth opportunities and value and is helpful in getting broad exposure to the market.

Packer: There's also ... another wonderful choice called community investing. We have a program through the Calvert Foundation, very well-respected, where instead of a CD one can choose an investment for as low as $1,000 and you can choose the interest rate. And that's what's interesting: anywhere from 0 to 3 percent. And this money goes back to build community, goes to community investment organizations throughout the United States and internationally.

Does anyone really take 0 percent?

Packer: Yes! I'm pleased to tell you that we have people who say, "I've gotten it on the growth side, I'm very comfortable taking 0 percent. It's my way of giving back."

Can anybody use these strategies?

Wheat: I think they apply to everyone. And there are actually some things that apply to people with middle income that aren't available to higher-income people. One of the things I recommend now ... is converting an IRA to a Roth IRA. You have a $100,000 income limit in order to be able to do that. Now, while the market's down, is a good opportunity to convert and make sure your taxes are as low as they possibly can be when you make that conversion.

Volatile markets can mean great opportunity. Are you telling your clients to jump in?

Wheat: I really stick to some basics on financial planning, which is develop an asset allocation and try and stick to that. Keep your costs low and rebalance. I really try and hammer that home to my clients both now when things don't look as good.

Packer: We've been holding a lot of cash this past year. But we're beginning to see some good buying opportunities.

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