In the midst of geopolitical conflicts, some investors are reevaluating their approach to investing. While defense stocks traditionally experience a surge in performance during times of war, a group of everyday investors have chosen to prioritize their moral compass over potential financial gains. These individuals are consciously avoiding defense stocks, opting for investments that align with their personal values. This article delves into the ethical dilemma faced by investors when it comes to profiting off war and explores the growing trend of investing with a moral conscience.
Despite the market axiom that defense stocks tend to perform well during times of war, some investors are actively steering clear of these investments. Kenneth Suna, a popular TikTok influencer with a significant following, openly questioned whether it is morally acceptable to profit off war. Suna’s stance reflects a sentiment shared by a group of investors who refuse to compromise their moral principles for financial gain. These individuals believe that where their money goes matters and choose to invest in other sectors instead.
The recent conflict between Israel and the Hamas militant group presented an opportunity for defense stocks to soar. The iShares U.S. Aerospace & Defense ETF experienced a significant increase in value following an attack by Hamas, outperforming the benchmark S&P 500 index. Retail traders poured into defense stocks and funds, capitalizing on the potential for higher returns. However, this surge in performance was short-lived, and inflows into defense stocks have since cooled. This trend suggests that investors are starting to prioritize ethical considerations over short-term gains.
The Rise of Ethical Investing
Investors seeking to align their investments with their personal values have turned to tools like Weapon Free Funds. This screening platform allows individuals to gauge defense exposure in their investment portfolios, including their 401(k) funds. Andrew Behar, the CEO of As You Sow, the nonprofit behind Weapon Free Funds, emphasizes the importance of empowering investors to make informed choices about how their money is invested. The platform provides letter grades to funds based on their military weapons holdings, enabling investors to make decisions that align with their values.
Critics of defense companies argue that investing in these stocks may contribute to the perpetuation of war and conflict. They point out that increased geopolitical strife often leads to higher demand for defense products. Additionally, concerns regarding the human toll of war further amplify the moral qualms associated with investing in defense stocks. These ethical considerations have become even more prevalent in the context of the Israel-Hamas conflict, where international opinion on the use of weapons is more divided compared to conflicts like Russia’s invasion of Ukraine.
Investing with a moral compass is not a new phenomenon. An increasing number of investors, particularly Gen Z and millennials, prioritize investments that align with their beliefs. A survey conducted by U.S. Bank revealed that over 80% of these younger investors would be willing to underperform the market if it meant their investments were in line with their values. This approach allows individuals to integrate their personal principles into their investment decisions, creating a sense of consistency and authenticity.
The Fine Line
Investors like Kenneth Suna find themselves caught between different schools of thought. Some argue that war is inevitable, and therefore, investing in defense stocks is just a pragmatic choice. Others, especially younger investors, abstain from investing altogether due to a lack of faith in the equity of the stock market or a belief that no corporation is entirely ethical. Suna faces the challenge of balancing his long-term financial goals with his desire to invest ethically. While the decision to avoid defense stocks may seem straightforward to some, others grapple with the complexity of morally sound investing.
The ethical dilemma surrounding defense stocks highlights the broader trend of investors seeking to invest in alignment with their values. While defense stocks may deliver short-term gains during periods of war, a growing number of investors are choosing to prioritize their moral compass over potential financial returns. Tools like Weapon Free Funds empower individuals to make informed investment decisions that reflect their personal principles. As ethical investing gains momentum, investors are reshaping the landscape of the financial market, showing that finance and morality can coexist harmoniously.