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January 2009

Investing Ethically

This article was written by in Investing. 7 comments.

Last year we wrote an article about Ethical Consumerism, the practice of spending your money on businesses who support your ideas of a healthy community and environment.

In addition to where you spend your money, you can also put a lot of thought into which investment vehicles agree with your personal ethics. This is something weighing on my mind as I start from scratch learning about investing as a whole (see my previous article on the subject: What Do I Know About Investing?). There are a few different strategies, as I see it so far:

Invest in things you think will succeed, regardless of your own ethics

One of my co-workers is the sort of person who eats well, exercises all the time and generally treats his body as a temple. When I asked him if he ever does any investing, he quickly answered, “Only in the Vice Fund”. The Vice Fund invests in alcohol, gambling, tobacco and aerospace and defense industries. You could think of it as the “World is Going to Hell Fund”. The way I see it, investing in something with that kind of mission statement is akin to hoping other people keep destroying themselves.

For a guy who treats his own body as a temple, this seems like a weird contradiction, but as he tells it, the fund has been very lucrative for him, excluding 2008.

A similar example might be a vegetarian with a lot of stock in Burger King. Doesn’t make a whole lot of sense, except it could be quite profitable.

Invest in things you wish would succeed

For example, I wish that solar, wind and geothermal energy would succeed, and if I believed my Fifth Grade teachers, by 2009 those are the only sources of energy we should be using. I’m not particularly opposed to oil and coal because they’re dirty and they may be funding who-knows-what kind of overseas operations; I’m opposed to them primarily because they are finite resources. Eventually we will run out, and we may as well start weaning ourselves off of them now, because of the other environmental and political reasons. But do I think all humans will stop using oil and coal by the time I should be retiring, in about 30 years? I’m not sure.

Hedge your bets

Well, there’s one method of hedging your bets, which is to invest both in the things you think are successful-but-harmful, and in the things you think would benefit the world if only people saw things the way you do. But this doesn’t seem like a strong, long-term strategy to me. One of them will eventually fail. Thankfully, there’s another nuance:

The oil giant Shell is following BP and releasing a bunch of commercials highlighting how they’re committed to refining new ways to power things. This reminded me of another transition that shook up some companies: when photos moved from film to digital.

Nikon, for example, cruised along for decades making some very good (and some very cheap) film cameras. When computers became fast enough and connected enough, people started sharing their photos digitally and demand for digital cameras grew. Not willing to let a different company take their market share, Nikon became expert at making digital cameras as well.

Oddly, I don’t hear the names Kodak and Polaroid as often as I used to, though I know they’re still around.

Today we think of Exxon and Shell as “oil companies”, but they may very well position themselves as leaders in the geothermal energy space in the future. Here’s where my earlier advice about doing lots of research come back into play.

Further reading

Consumerism Commentary has written many, many articles about investing in the past. Flexo is a lot more knowledgeable than I am, so far, but I hope to catch up soon.


The way banks are dropping interest rates on savings accounts, you would think they don’t want your money. Most “high-yield” savings accounts now offer rates well under 3%. HSBC Direct is the latest to announce an interest rate cut, from 2.6% to 2.45% APY and is currently at 1.55% as of May 2009. Obviously there is more that goes into the decision to cut rates than attracting customers, but online banking is more of a commodity now. Saving and lending money is less focused on community. The sheer number of banks that are available to any customer at a click of a button results in competition, but the field is mostly homogeneous.

For many customers focused on making the most out of their cash, the interest rate is the most important feature of a bank. Friendly tellers and community service are no longer major drivers when choosing an institution to keep money, particularly amongst the surge of online-only banks. The best online banks do focus on customer service and user experience, however. But the bottom line is money. The force of compound interest is so important, and when you’re dealing with significant cash in the bank, you want to ensure your money is earning as much as possible.

When I started seriously managing my money towards the beginning of this millennium, I chose ING Direct because its rate was the highest and it came highly recommended from people I trust. I’ve discovered since then that this bank offers good customer service and a decent online experience, so I continue to recommend them to friends and readers who want to get started. And it’s hard to ignore your ability to earn $525 just for opening a new account there. Their rate is no longer the highest, but it not far behind HSBC Direct, at 1.5% APY.

There are ten fresh referral codes as of last night for ING Direct’s Orange Savings Account. These allow new customers to earn $25 right away for opening a savings account and they are provided by Consumerism Commentary readers. If used properly, with a $250 initial deposit, the depositor receives this bonus while the reader who provided the link receives a $10 bonus. Once a new account is open, the customer should receive referral links of his own to share.


Banking online by visiting a bank’s website directly to perform typical transactions like checking your balance, reviewing and reconciling your recent transactions, paying bills, or transferring money, is generally safer than doing the same in person, whether at an ATM or a teller. Your information is encrypted and you can take care of your business in the privacy of your own home. There are some dangers, however.

Most commonly, the danger lies in your own computer. If your computer is infected by a virus or a Trojan horse, your account information, like identification name, password, PIN, and secret word, could be recorded by this program and secretly transmitted to someone who will use the information to drain your account. Less frequently, the bank’s database containing customer information can be compromised.

I’ve seen many lists with tips for customers who want to ensure that their online banking experience is safe. For example, customers should always look for the padlock icon in the browser when visiting a banking website, always verify the URL in the address bar has https (note the “s”) before entering a password, and never click on links in emails that claim to come from a bank (phishing). Other general security tips include keeping your passwords private and maintaining up-to-date virus and spyware scanners on your computers.

But there are certain things banks can and should do to keep up their end of the bargain. Many banks already follow some or all of these suggestions, but smaller banks may not always have the money to implement these features. If safety is your concern, look for banks that have put effort into these ideas.

1. Require multi-factor authentication.

A user name or number and a password or PIN are no longer enough. Most banks still operate their websites by asking the customer for only a user name and a password to log in. This method is highly vulnerable to phishing and Trojan horse programs. Some banks have implemented additions to this process to enhance security.

ING Direct, in addition to a customer number or PIN, requires you to enter the answer to one of several questions, such as, “What was your high school mascot?,” selected when the account was created. In this case, the question is only asked the first time you are log into the bank from any particular computer, though you may be asked to reconfirm every month.

2. Avoid using input fields in web forms.

The most common way to allow a customer to enter information, like a user name and password, into a website is to use a “web form.” Web forms can be encrypted, but their existence is a signal to malicious people who want to steal users’ information.

HSBC Direct requires two passwords, though the second is called a “security key.” Rather than typing the security key using the letter and number keys on the keyboard, the bank’s website presents the customer with a graphic. He or she must use the mouse or other pointing device to click the letters and numbers within the graphic in order to gain access.

3. Require strong passwords.

I am lazy. I have hundreds of passwords I must remember for various websites and applications. There is a tendency for people to deal with password overload by using the same password for multiple systems or choose words that are easily memorable. Banks can’t do anything about customers who use the same password across several institutions, but they can enforce “rules” for determining passwords. Strongest passwords should be a mix of letters, numbers, and punctuation. No combination of letters found in the dictionary should be allowed. For example, meaty613 is weak password while yk1lt3m^ is much stronger.

A minimum of eight letters, numbers, or punctuation marks would help to strengthen passwords as well. Long passwords with a combination of characters not found in the dictionary will help to reduce the chances of someone — a friend who knows what you might choose or a computer program that has the ability to use “brute force” techniques to keep trying different passwords until it finds one that works — guessing the right combination. Banks can enforce these rules.

4. Use a dynamic key.

To access my work’s network from home or any other remote location, I have a SecurID token. Every sixty seconds, a new six-digit number appears on the token. This number, in combination with a PIN, is required in order for me to log into work from home. Obviously, sending SecurID tokens to every bank customer would be a large expense for any reasonably-sized bank. There are other ways to use dynamic keys, or passwords that change over time.

I am unaware of any bank that currently offers this, but one way to implement a dynamic key would work like this: You enter your user name, strong password, and second authentication key through the bank’s website. The bank retrieves your user account information, including your cell phone number or mobile email account and sends you a text or e-mail message with a dynamic key. You are then required to enter this key into the website.

5. Require password changes every thirty days.

In a world where we have hundreds of passwords to memorize, being required to change passwords every thirty days is a huge annoyance. It also invites laziness. I know many people who simply change the number at the end of their password each month, cycling through passwords like flexo1, flexo2, flexo3, and flexo4 each month. Many banks will choose not to implement this rule simply because it is seen as not user friendly. And yes, I would be annoyed if every bank required me to change my password every month. It’s a trade-off between security and convenience.

6. Lock accounts after detecting three failed log-in attempts.

If a bank detects a series of incorrect passwords for any one account, it should disable the account from being accessed through the web. Most people do not guess their passwords. By requiring a telephone call, during which the customer service representative asks more authentication questions, banks can ensure the rightful account owners can quickly regain access to their accounts while protecting accounts experiencing someone trying to “hack” their way in. Note that the bank should not send an email with a link to unlock the account because the email account may have been compromised, as well.

7. Contact the customer after every transaction.

Banks could increase security by informing their customers of each transaction that takes place in the account. When I initiate a transfer at ING Direct, the bank sends me an email to let me know that it has been initiated. If someone else had accessed my account and transferred money out, I would know within minutes and could contact the bank immediately.

ING Direct has also begun to contact me when other companies pull an ACH debit. My electric and gas bill is configured to be paid in full every month from my ING Direct account, and each month, I receive a notice from ING Direct when the ACH is accepted. Rather than email, a quick text message might be considered unobtrusive enough for activity confirmations.

8. Require up-to-date antivirus and spyware detection software.

In order to log into my network at work from a remote location, I am required to be running the latest version of an antivirus application. The brand doesn’t matter; I could be running McAfee or AVG Free. AVG Free is one of my favorite security suites. It provides state-of-the-art protection from malicious software (malware), and it’s free.

Banks can install a small application through their website that detects the presence of protective software like AVG Free, McAfee, or Norton, and determines whether the software is up-to-date. If no antivirus software is installed and running in the background, then the customer is presented with options for installing protection. Preventing unprotected computers from accessing the website will help reduce the frequency of stolen account information through phishing.

Some of the above suggestions may be considered annoying or excessive for customers. Banking over the internet is generally safe, but malicious individuals increase their knowledge and ability all the time. They adapt faster to security implementations than banks adapt to new methods of breaching. In the worst case, hackers — or people who pay hackers — can steal not only your money but your identity. I understand that cleaning up the mess left behind when your identity is stolen can be one of the most grueling processes one might ever experience. It may be worth some inconvenience to add more layers of protection between the world and your bank accounts.


If President Obama’s economic stimulus plan is signed into law is it currently stands, individuals stand to receive a tax credit of $500 and couples stand to receive a tax credit of $1,000. Provided you’re not disqualified for earning too much money, $75,000 for an individual or $150,000 for a couple. Taxpayers might receive this credit either by claiming a credit on the 2009 and 2010 tax returns or by reducing withholding from paychecks.

There is little hard evidence that last year’s stimulus payment helped the economy. In fact, it has done more to confuse and anger taxpayers who now believe they are required to return the stimulus payment to the government, a widespread misunderstanding thanks to the way the Congress decided to facilitate the credit.

While I explained that in whole the 2008 economic stimulus payment would not affect tax returns, astute people who file their taxes online or use software to calculate what they owe or receive have noticed that changing the amount in the line for the recovery rebate credit affects the amount of their refund or payment due.

There’s a simple explanation: If I tell you I’ll give you and nine of your friends $100 next year, but then offer to give you and only eight of your friends that $100 this year to provide a head start in spending that money, you can’t come to me next year and get that $100 again. You have one friend that will get to collect the $100 next year, but you and your nine friends who received the early check don’t receive it again.

An additional new tax credit created with the possibility of receiving a partial or complete payment in advance will cause more confusion when it comes time to file 2009 tax returns.

For me, another $500, especially if spread over two years, will have absolutely no effect on my consumerist spending tendencies. I would save the money, not spend it or pay off debt. You could argue that those of us who save the money are just passing along funds from the government to banks, but banks can’t use customer’s deposits the same way they can use a cash infusion directly from a government bailout.

Will a $500 or $1,000 “stimulus” affect your ability or desire to save, pay off debt, and spend?

February 13 Update: The Senate and House of Representatives have both passed the compromise version of the stimulus bill. Read the complete stimulus bill here, and you’ll be a step ahead of many of the congressmen who didn’t have a chance to read it before voting.


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