The morality of mutual funds is a common question that has been asked by many conscientious Christian believers who want to invest their talents as faithful stewards of God’s resources but also want to have a clear conscience about not being complicit in any immoral activity.
“Isn’t it wrong to invest in immoral businesses?” they ask. “Therefore, wouldn’t it also be wrong to invest in mutual funds or index funds that contain immoral businesses?”
For example, if it’s wrong to buy stock directly in Anheuser-Busch (maker of Budweiser beer), wouldn’t it be wrong to buy a mutual fund or index fund that has Anheuser-Busch as one of its holdings?
It’s an important topic and one that deserves some careful attention. (Caution: This turned out to be a rather long post!)
Only Three Options
To answer this question, there are really only three options:
- Direct and indirect responsibility – We are morally culpable for immoral acts conducted by businesses whether we are directly or indirectly associated with them.
- Direct responsibility – We are morally culpable for immoral acts conducted by businesses with which we have direct association, but not through indirect association.
- No responsibility – We are not morally culpable for any immoral acts conducted by businesses regardless of our direct or indirect association with them.
I believe it is safe to rule out option 3 as having any merit. I think it goes without saying that we would be morally responsible if we were to actively and directly participate in a business that perpetrates evil. So that really leaves us with the first two options as potential answers to our dilemma.
The Core Issue: Indirect Moral Complicity?
As you’ve picked up, the key difference between those two views is whether we are held morally responsible for the immoral acts of others with whom we have indirect association. As this is ultimately the crux of the issue, it’s critical to answer this question before going any farther. As a Bible-believing Christian, I hold a deontological view of ethics, where right and wrong is determined by a moral standard external to myself, so naturally, I look to Scripture for that moral standard to help in answering this question.
Does God Hold Us Accountable for the Evil That Occurs Through Our Indirect Associations?
As with many principles in Scripture, there may not be one black and white text that nails down the answer to our question, but we may discover the principle through comparing various passages. Let’s take a look at a few now to see what we can glean.
The LORD shall open unto thee his good treasure, the heaven to give the rain unto thy land in his season, and to bless all the work of thine hand: and thou shalt lend unto many nations, and thou shalt not borrow. – Deuteronomy 28:12 KJV
As a part of the blessings given to Israel in condition of their obedience, God promised that they will have a surplus to lend (invest) to other nations. Seeing that all of the surrounding nations were heathen nations, would this not make Israel complicit with the immoral activities of their heathen neighbors enabled through their investments? Couldn’t God have simply kept all the investment dollars within the nation of Israel?
And he looked up, and saw the rich men casting their gifts into the treasury. And he saw also a certain poor widow casting in thither two mites. And he said, Of a truth I say unto you, that this poor widow hath cast in more than they all. – Luke 21:1-3 KJV
The treasury into which this widow cast her farthing was the same treasury from which the blood money was withdrawn to betray Jesus. Knowing full well that that treasury went to fund the very crusade that would lead to His death, Jesus nevertheless commended the widow for her act. It’s probable that the woman didn’t know of the corruption aided by her financial gift, but the point is still that the woman received affirmation for her direct act of faithfulness and was not culpable for the evil that she was indirectly associated with.
And they asked him, saying, Master…Is it lawful for us to give tribute unto Cæsar, or no? But he perceived their craftiness, and said unto them, Why tempt ye me? Shew me a penny. Whose image and superscription hath it? They answered and said, Cæsar’s. And he said unto them, Render therefore unto Cæsar the things which be Cæsar’s, and unto God the things which be God’s. And they could not take hold of his words before the people: and they marvelled at his answer, and held their peace. – Luke 20:21-26 KJV
Wherefore ye must needs be subject, not only for wrath, but also for conscience sake. For for this cause pay ye tribute also: for they are God’s ministers, attending continually upon this very thing. Render therefore to all their dues: tribute to whom tribute is due; custom to whom custom; fear to whom fear; honour to whom honour. – Romans 13:5-7 KJV
The Jews believed that it was contrary to their faith to pay taxes to Rome. It’s hard to blame them! They believed that it was wrong to aid in the work of their heathen oppressors through their financial tributes. In fact, that was precisely the trap that they tried to lay for Jesus. If He said to not pay taxes, they would report Him to the Roman authorities as an insurrectionist, but if He said flat out to pay taxes, they thought it would condemn Him as violating their moral code. Yet Jesus and Paul both supported paying taxes—indeed, to the cruel civil power that slaughtered all those innocent babies in Bethlehem! Moreover, Paul adds that believers ought to do it for “conscience sake”. So in fact the direct act of NOT paying taxes to Rome was of greater moral consequence in the eyes of God than the seeming indirect moral complicity in their heinous acts.
But one might muse, taxes were compulsory for citizens in the Roman Empire. This surely doesn’t extend to voluntary acts, right? Let’s take a look another passage from Jesus.
But I say unto you, That ye resist not evil: but whosoever shall smite thee on thy right cheek, turn to him the other also. And if any man will sue thee at the law, and take away thy coat, let him have thy cloke also. And whosoever shall compel thee to go a mile, go with him twain. – Matthew 5:39-41 KJV
An ordinance in the days of Jesus permitted a Roman civil servant (such as soldiers) to draft any citizen anywhere, anytime to compel them to carry their burdens for a short distance. Naturally, the Jews detested being treated as pack animals by their hated enemies. Remarkably, Jesus didn’t simply encourage compliance with the mere minimum requirements of the law, but to voluntarily provide additional service above and beyond the call of duty. Why would He encourage the voluntary, unnecessary support of an evil government if they would be complicit in the evil that might be perpetrated through that act? It appears that to Jesus, it is the direct act of “loving our enemies” that was of moral significance to Him, rather than what evil may be aided through our indirect associations.
Ye have heard that it hath been said, Thou shalt love thy neighbour, and hate thine enemy. But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them which despitefully use you, and persecute you; That ye may be the children of your Father which is in heaven: for he maketh his sun to rise on the evil and on the good, and sendeth rain on the just and on the unjust. – Matthew 5:43-45 KJV
God makes the sun to rise on the evil and the good, and sends rain on the just and unjust. So in a real sense, God enables all that the evildoers do. So if we hold to the view that any indirect association with immoral activity makes us morally complicit, then God Himself is complicit to all the evil that occurs every day. From my understanding of these Bible passages, attaining 100% moral purity in all of our indirect interactions not only isn’t required but is untenable. That’s a standard that even God Himself can’t be held to.
I wrote to you in my letter not to associate with sexually immoral people— not at all meaning the people of this world who are immoral, or the greedy and swindlers, or idolaters. In that case you would have to leave this world. – 1 Corinthians 5:9-10 NIV
This passage is instructive in that the terms “greedy and swindlers” imply that Paul was referencing commercial interactions—namely, that it is impossible to avoid all immoral people in the marketplace if we are to function at all in the world. Paul in the next verse clarifies that we shouldn’t countenance such immorality within the church, but his point here is clear that the ONLY way we can reasonably avoid all immoral associations in the world (i.e. in the secular realm outside the church) was if we were to leave this world entirely. In short, Paul himself says that it is untenable to expect such a level of purity of interactions.
Our Moral Responsibility Has Limits
So in summary, the principle I gain from these passages is that my primary moral responsibility is to do the good and right things that I have direct control over, but the potential evil that may indirectly be enabled through my good acts aren’t held to my account.
Moral Consistency is Needed
I know it came as a surprise to me when I came across this principle. But as I thought about it practically, it makes a lot of sense. Because if a moral rule holds true, then it must apply not only to my investments but to all aspects of my stewardship responsibilities—where I work, what I buy, where I give, who I interact with, etc. I had to ask myself, can this rule of complete moral purity in all direct AND indirect interactions be reasonably applied across the entire spectrum of life?
- I wouldn’t be able to conscientiously do business with most banks because the money I hold in my bank accounts are loaned out by those banks to other businesses, which surely includes immoral activity that I disagree with. If it’s an investment bank, that money will actually be invested right into the stock market itself–the exact moral objection we would have with mutual funds in the first place!
- I shouldn’t shop at Costco anymore since they are the largest retailer of wine in the US. By being their customer, I would be complicit in supporting the alcohol industry. (The same can be said for even my beloved ALDI—their killer low prices are subsidized through their alcohol profits!)
- I went to SeaWorld many times as a kid, but prior to 2009, all SeaWorld parks were owned by Anheuser-Busch Company. So all my tickets purchased to see Shamu before 2009 went to support Budweiser beer.
- I shouldn’t fly with any major airline that serves alcohol either.
- I must stop using The Weather Channel app on my phone because it is owned by NBCUniversal. The ad revenue they generate from me goes to support the rest of their entertainment empire that I don’t believe in.
- I can’t stay in any hotel chain that permits pornography to be shown in their rooms.
- I can’t use any electronics manufactured in China or anywhere in the developing world (Apple, Acer, Asus, Samsung, etc.) due to the human rights violations perpetrated by those manufacturing firms.
- I wouldn’t be able to conscientiously use power from most electric utilities because of the tremendous pollution from their coal and nuclear plants.
- I would not be able to wear clothing from most outfitters (The Gap, Old Navy, Levi’s, H&M, Nike, etc. and certainly no brands from Walmart) because of sweatshops and child labor in their foreign factories.
- I also would need to make sure none of my food products were manufactured by industrial/factory farms or packaging companies that violate human rights, promote illegal immigration, pollute the environment, destroys the natural ecology, or has affiliation with Monsanto. (Cue evil villainous music.)–This would include names like Campbell’s, Con-Agra, Kellogg’s, General Mills, Heinz, Celestial-Haines, and way more.
- Before 2007, Nabisco and Kraft foods were subsidiaries of Altria— the largest cigarette manufacturer in the US. Any Oreos or Wheat Thins I bought before that date went to support the tobacco industry.
As you can see, the corporate world is so entangled and so fluid that it is hard to walk two steps in any direction without coming into a moral quandary. Certainly more now than in Paul’s day, it is an impossible burden to make sure every interaction, each decision, and each purchase checks out morally. As Paul himself said, the only possible way to accomplish this would be for us to leave the world.
Does that Mean We Shouldn’t Try?
So am I saying that just because we can’t have perfect purity in all our indirect interactions that we should just not try?
Not at all.
What I’m saying can be summarized like this:
- Recognize what Scripture does and doesn’t require of us, and make sure to not create a moral rule for ourselves that’s beyond what God requires and is impossible to keep.
- We should make sure that all of our direct interactions are morally pure, and that we are following God’s clearly revealed plans for us. We ARE held accountable for that.
- Then do the best we can with the remaining indirect interactions, recognizing that we live in an imperfect and sinful world, and that we shouldn’t neglect the major duties while quibbling over minor matters. Borrowing from Jesus Himself, let’s not “strain at a gnat, and swallow a camel” (Matthew 23:24).
So by all means strive to make the best choices and decisions that we can as far as those indirect associations are concerned, but realize that oftentimes it is down to our personal convictions and not a moral imperative to prescribe to everyone else. And importantly, let’s not lay upon ourselves a burden of guilt that God never intended.
Must We Invest?
At this point, perhaps the question raised is whether investing is a necessity for the Christian at all? In some quarters, saving and investing for the future is considered a demonstration of faithlessness in God’s ability to provide. But I’ll let the Bible speak for itself:
Go to the ant, thou sluggard; consider her ways, and be wise: Which having no guide, overseer, or ruler, Provideth her meat in the summer, and gathereth her food in the harvest. – Proverbs 6:6-8 KJV
The wise store up choice food and olive oil, but fools gulp theirs down. – Proverbs 21:20 NIV
But his master answered him, ‘You wicked and slothful servant! You knew that I reap where I have not sown and gather where I scattered no seed? Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest. – Matthew 25:26-27 ESV
As you can see, saving and investing is certainly Biblical. But what is the purpose for these savings?
But if any provide not for his own, and specially for those of his own house, he hath denied the faith, and is worse than an infidel. – 1 Timothy 5:8 KJV
God expects us to save up to provide for the needs of our family. And if I read that last verse properly, it certainly looks like a moral obligation. (You can also check out a previous post I wrote on the Christian’s perspective on retirement.)
So if you are able to provide adequately for your family’s future without saving and investing, then investing may not be necessary for you. But for most of the rest of us, it isn’t possible for us to make that kind of provision without careful saving and investing. In that case, I believe it would be morally IRRESPONSIBLE for us NOT to prudently save and invest.
So What About Those Mutual Funds?
Wow, we’ve come a long way together, but I think it’s time to revisit the question that started it all. Are we complicit with evil if we invest in mutual funds that hold offending businesses?
Based on the principles discussed, I would not be comfortable buying stock directly in a company with which I disagree morally just like I wouldn’t be comfortable being an employee or customer. I would consider this a direct association. However, I would be comfortable with a mutual fund or index fund that might own a little bit of that company because I would consider this an indirect association. Let me explain:
- Intent and Objective. Buying stock directly in a company is a conscious decision to profit from that business’s activity. Whereas when buying a mutual fund or index fund, I’m buying into a diversified investment objective that may indirectly have incidental contact with that business. The objective isn’t really tied to that business. In fact, most of the time it’s not even possible to see what all of the holdings are in a mutual fund since it’s changing all the time (index funds, excepting). A business can be dropped from the fund and the investor may not even know and probably wouldn’t care. To take it one step further, I can boycott and campaign for a particular business to close without conflict even if it’s held in a mutual fund that I own, because in a mutual fund, that business will simply be replaced were it to disappear and my investment would largely remain undisturbed.
- Materiality. Let’s take the largest company in the world right now: Apple. Let’s say I bought $10,000 in Vanguard’s Total Stock Market Fund, which currently holds 2.42% in Apple as it’s largest holding. With Apple currently valued at a $615.79 Billion market capitalization, I would own a whopping 0.00000004% of Apple. This means if Apple were divided into 2.5 billion pieces, I would own one. Such a microscopic level of involvement seems significantly inconsequential in the grand scheme of things. It certainly qualifies as indirect involvement in my book—far less than paying taxes to a corrupt government or volunteering to carry a pack an extra mile for an enemy soldier.
Incidentally, perhaps now is a good time to address a common misconception regarding stock and mutual fund investing. When we or a mutual fund buy stock on the open market, the vast majority of the time we aren’t “giving money” to the company at all. The only exception is if we are purchasing new issue shares—an extremely rare possibility for most common folk like us. We are simply trading with another investor on what’s called the secondary market.
An example is if we’re buying a used car from a private seller. We will be an owner of a Camry, but none of our money went to Toyota. In the same way, when we purchase stocks, we are simply purchasing ownership from someone who is selling theirs. The company got the money in the initial issuance of the stock, but all subsequent trades doesn’t result in them getting any more money. So the concern that by buying stock or mutual funds we are inadvertently “giving money” to an immoral business is a non-factor.
Summary and More
There is no such thing as a perfect investment. There are no investments this side of the Bank of Heaven that offer all upsides with no downsides. However, saving and investing for the future is a positive duty for most of us, so that means we are left to do the best we can with the imperfect options available to us.
So while I believe that mutual funds and index funds are an acceptable form of investment, another investor may still feel uncomfortable with them. That’s not a problem, as long as we recognize that that is ultimately up to our individual conscience and not a universal moral rule that can be derived from Scripture. I would hope that if someone were conscientious to this degree over mutual funds, that they would at least be as conscientious in other matters that are arguably more consequential such as their purchasing habits and other business dealings.
However, it’s important to remember that there are additional principles that need to be kept in mind as we evaluate the investment options available to us. In our next post, we will continue this discussion by reviewing what some of them are. Also for those who still feel uncomfortable with mutual/index funds, in an upcoming post we’ll look at other investment types that might be viable alternative options.
So what do you think? How do you balance the need to invest with the moral values that you hold?
Check out the other parts of this series:
- The Morality of Mutual Funds, Part 2: 7 Principles of Investing
- The Morality of Mutual Funds, Part 3: Common Alternative Investments