Sin Numero Deux: Picking Socially Responsible Funds Just Because They Sound "Good"

Have you ever bought something just because it looked or sounded good, only to be later disappointed by the purchase? Perhaps it was a fabulous bra that squeezed you in all the wrong places? A wine in a fancy bottle that tasted a little too much like cat pee (while "feline urine" is a common and sometimes desirable descriptor for New Zealand Sauv Blancs, there is definitely such thing as too much of a "good thing")? Or a book with a delicious looking cover that once opened on the plane made you turn to reading the emergency exit procedure card?

We all eventually become better and more efficient shoppers by taking the time to try on the bra on, ask the sommelier, and flip through the book before purchasing. But how many of you selected XYZ "Socially Responsible Investment Fund" in your 401(k) because it sounded like the "good" or "right thing to do"?!! I've seen a lot of these in my HMW friends' portfolios and am sorry to say that a number have downright irresponsible returns!

Let's take a look at the Investopedia definition of Socially Responsible Investing:
"An investment that is considered socially responsible because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in environmental sustainability and alternative energy/clean technology efforts. "

Sounds pretty lukewarm, perhaps even positive to some of you (except for the part about avoiding alcohol companies -- wine has been around since Man learned to walk bipedally, and to me is therefore perfectly responsible and enjoyable for most people).

Here's the problem: a number of these SRI funds lag the indexes they're using as a benchmark and charge pretty steep fees for all the research necessary to weed out all of supposedly sketchy companies.

Investopedia cautions: "Just because an investment touts itself as socially responsible doesn't mean that it will provide investors with a good return." Over time, these high fees and lagging returns will ultimately compromise your ability to save and be a philanthropist. (The ultimate giver of late, Warren Buffet, waited until he had accumulated an extraordinary net worth before unveiling a gradual plan to donate over $35 billion so his contribution could first benefit from growth.)

LMF 4 HMW bottom line: Unless your 401(k)'s SRI fund choice is beating its benchmark net of fees, do something socially responsible outside of your portfolio. Give to charity, volunteer at a homeless shelter or the Boys & Girls Club. Or heck, buy a renewable energy gift card credit at Whole Foods -- I didn't say it actually had to be useful :)

************ EXTRA CREDIT
This is a super idea, courtesy of my fabulous fiance, who happens to be in the industry: "Why not track the performance difference between the SRI fund and what you actually invest in. Then contribute this amount of money to charity. You still come out ahead in the long run thanks to compounding, and you sleep more soundly at night knowing the world is a better place?" Not very LMF, but another way to contribute without sacrificing your ROI.