What companies are your 401(k) investments supporting?

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What companies are your 401(k) investments supporting?

When you invest in a 401(k), you could be investing in hundreds of individual companies. But do you know which ones?

Democratic candidate Elizabeth Warren recently received flack for previously investing in a retirement fund that included shares in private prison companies. This goes against Warren’s stance that private prisons should not exist.

How do you make sure the companies you invest your retirement savings in align with your ideals?

Start with a fund’s prospectus document

Every publicly traded stock, bond, mutual fund and index fund has what’s called a prospectus or statutory prospectus. The prospectus tells you exactly what individual companies or other funds a mutual fund invests in. It also shows how many shares are in the fund and how the fund has performed.

The prospectus is a pretty boring document, but finding the investments is relatively easy. It’s also filed with the Securities and Exchange Commission, so it’s trustworthy.

You can read a fund’s prospectus before or after you invest. You can also get one whether you manage your own investments or use a robo-advisor.

If you invest in a retirement fund, it may include a number of smaller funds instead of individual companies. Unfortunately, this means you’ll need to find the prospectus of the smaller funds to learn what they invest in.

Consider socially responsible investing instead

SRI uses only companies that meet certain criteria or support specific cause, like gender equality or abolishing private prisons. Many of this year’s top investing apps have some level of SRI.

The key to SRI is choosing an investing service which offers socially responsible exchange-traded funds. Some services allow you to choose a complete portfolio of SRI funds. Others only have a few available SRI funds that you can add to your portfolio.

There are two factors to consider with SRI funds: the price and the return. It’s typically more expensive to invest in socially responsible funds. Any fund you invest in will have a management fee, called an expense ratio. The expense ratios for SRI funds may be twice as high (or more) compared to standard funds.

SRI funds also may not have the same returns as standard funds. Some SRI funds focus on supporting certain ideals instead of just maximizing profit. There are many profitable SRI funds, so check out a fund’s previous performance before investing in it.

Before you choose any SRI funds, read our guide to socially responsible investing.

Image: Lambert (Getty)