By Dr. Charles Patterson, WCI Columnist
Much ado is made about the ethics of investing. At this point in my career—having taught and discussed personal finance with scores of trainees, physicians, and non-physicians over the years—I am still surprised at the reticence I find among young investors. There is a certain sense that wealth is a bad thing, a bad thing for greedy people, that those with financial security are to be excluded from the righteous and socially upright. This is a real hurdle for some young professionals, and it is for this reason that I have taken to committing the first portion of my finance talks to the moral imperatives that surround personal finance.
But even the contention that moral imperatives exist is fraught: in an era of relativism, taking any particular stance can seem undignified. This helps to explain the squeamish glances, the seat-shifting, and the heaviness that can accompany these talks. Money is personal, and I recognize that the convictions that surround it can be deeply held. Within The White Coat Investor community alone, certain guest posts have been viewed by some as inflammatory, sparking conversation, further published feedback, and a good measure of introspection. For others, ethics has nothing to do with finance: investing is deeply impersonal and not worthy of a single neuron’s discharge. This diversity of thought reflects a complex topic worthy of exploration.
I have three goals in writing this primer on finance ethics: first, to establish common ground in broaching the topic with colleagues. Second, I will argue that investing is an endeavor that is inextricably ethical in nature. Finally, I will propose a framework by which one might investigate their own sentiments on ethical investing. For the seasoned investor, this topic may seem pedantic, but I assure you that the young investors we are guiding are thinking about this. If young folks are focused on workplace culture and career satisfaction, they are certainly thinking about putting their money where their mores are.
Why We Should Care About Finance Ethics
Just as in the language of medicine, one cannot have a conversation about finance ethics without first defining the terms. As a brief review from your undergrad Ethics 101 course:
- Ethics: The principles that govern behavior or the execution of an act
- Morality: The value system that determines the goodness or correctness of an action
- Virtue: A trait or quality deemed to be of high moral value
- Duty: An obligation or expectation to act in a given way
- Finance: The study of monetary systems; the application of economic principles to the management of assets, capital, and currency
- Wealth: An abundance of that which sustains
Yes, you say. That is all flowery and nice and philosophical, but why do we really care about this?
We should pay close attention to this topic because as the wealth gap continues to expand, there also grows a disturbing and increasingly overt demonization and enmity of “the other side.” This is on clear display in both public discourse and in conversations on this blog. The solution, I would propose, is an ongoing effort to dispel misgivings through mutual understanding of our roles in society, the economy, and in personal finance. Anything shy of that will serve little else other than to promote distrust of our medical systems to the detriment of our patients and those working on their behalf.
We need to understand the reasoning behind our financial choices—not just for the maximization of portfolio performance, but for the health of our economy. And what is our economy if not the collective decisions that we the consumers routinely make? As stated here again, these concepts need to be learned, taught, and practiced according to our own prescription. Failing that, cooperative participation in our markets will fail. There is a real risk that, as time passes, an increasing proportion of young people will opt out of investing. Shame on us if that happens for our inability to assuage their concerns.
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Is Investing Ethical?
Having established the imperative to teach finance ethics and to encourage market participation among young professionals, we might entertain the idea of investing as a moral venture.
This concept is, to a certain degree, subject to the eye of the beholder. As we all have our own value systems, applying a universal dictum to the ethical nature of investing is fraught. But what we can say, observationally, is that there is clearly a wide swath of perspectives on the matter. And where there are sub-markets, there are products ready to cater to them. The most popular in recent times is the Environmental, Social, and Governance funds, or ESGs. These funds proffer a “socially conscious” portfolio for the “socially conscious” investor. But the ESG is just the tip of the iceberg. Interested in Sharia-compliant investments? There are funds for that. More interested in Catholic-friendly investments? There are those, too. Options abound whether Jewish or LDS or nearly any other persuasion.
The point here is not so much that options are plenty, but that our worldview—our faith—informs our financial decisions. What if you have no closely held religious beliefs or social ideology? That, too, is a perspective. It is a lens through which you will evaluate your investments. In an equitable sense, in that case, the return on the investment may be the only factor weighed in your decision. But even then, there are principles that govern your behavior. Financial decision-making in investing is therefore an ethical endeavor. How much we allow our conscience or subconscious to influence our decisions, well, that’s a different story for another time.
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What Are Your Moral Priorities?
How much of the ethical nature of investing plays into your financial life is entirely up to you. It matters only insofar as you are satisfied with the goodness of the investment. That goodness may strictly be portfolio performance over five decades. That’s wonderful. To another, goodness may mean that for an X% performance decrement, one opts against investing in fossil fuels or big pharmaceutical companies or liquor companies or any number of segments that causes them scruples. That is also wonderful. We all define what goodness is to us, regardless of whether we advertise our opinions. Perhaps there is value in at least defining it explicitly for yourself.
If you accept that you have moral priorities in your financial life and investment choices, then it is possible (if not probable) that you might bear some responsibility, or duty, to act according to them. Now, I am not here to argue for anyone else’s obligation or to proselytize any flavor of the same. But while we may feel uncomfortable discussing financial duties with others, we can at least recognize that they might exist in the same way that, for instance, our duty as a physician, parent, or citizen exists. And if such a duty exists for you, there is likely some value in defining what it is.
I might make one exception to my previous statement: I would argue that we have a duty to promote financial health. People who have achieved financial security live longer lives. They live healthier lives. They live happier lives. If you wouldn’t ignore a 10-pack-a-year smoking history in a 25-year-old, why would you ignore habits of financial ruin? As advocates for the prosperity of all, we as physicians are duty-bound to encourage financial literacy. We already do this to a large degree with our USPSTF screenings and such, but these are lessons worth repeating—especially to the young professionals among us who are at risk of failing to get the message.
Strong Convictions, Loosely Held
I recognize that there is a tendency to read such things as waxing philosophical. But I suggest that the arguments are sound and relevant: our actions and how we interpret them are subject to our worldview. Our habits, like our investments, yield outcomes (for good or ill). Resolutely, we must teach and encourage the next generation of investors, that they might know a prosperity greater than our own. In my experience, millennials and members of Gen Z are liberally and thoughtfully surveying their financial lives. There is a thirst for knowledge—for financial knowledge—and they are well-versed in finding the resources that will articulate it well.
It is, I think, a great service to speak with them in the mode in which they are most likely to receive. For some, that may be the written and active forums such as those published on The White Coat Investor (or on Reddit). For others, it is a trusted mentor or instructor. That is you. And that means approaching the ethics of finance with a well-circumscribed and thoroughly vetted personal perspective. Understanding these sentiments is paramount to strengthening ourselves and our society.
We want our readers, our learners, and our peers to prosper. It's the mission of this organization. Talking about money, in my view, is less about a didactic pontification and certainly not preaching. The underlying message is that good work can be done with habitual savings and careful investment. More overtly, our lives and communities are made better by the responsible and consistent application of our resources.
What that is specifically to you may differ drastically from the person sitting across the table. But the precept holds, and it is from this perspective that I have had the greatest success in conveying the basics of financial literacy. I am also aware of the mouth from which these words are spoken: a ‘seniored’ millennial, male, professional, gregarious, and large in stature. “Unassuming” just doesn’t fit, and as such, I am cognizant of the trust (or lack thereof) that might mistake my conversations for sermonizing. In a perfect world, my habitus and personality wouldn’t interfere, but we’re not living in a perfect world. Adapting to misgivings and building trust and confidence that I am not hawking some product or ideology may end up saving someone millions of dollars. And that is a good thing.
Much was covered in those previous 1,500 words, existential concepts that underpin our economy. They are matters capable of debate, and while I wouldn't necessarily be happy to be wrong, I am open to it so long as it betters my performance as a physician, instructor, and investor. That is lovely and a bit selfishly stated. As a group, getting this right—understanding the ethics of finance—has far-reaching implications to our patients, our pupils, our profession, and our economy.
We would do well, I think, to consider the topic and draw our own evolving conclusions.
Do ethics play a role in your investing life? Or do you subscribe to the perspective of: make as much money as you can however you can and then use that for good later on? What about in your role as a teacher? Comment below!
The views expressed in this article are those of the author and do not reflect any official position of the Department of Defense or the US government. These writings are not authorized, approved, or endorsed by any of the above entities.