What Are “Vice” Funds and Is It Really Wise to Invest in Them?

As the word “vice” implies, these types of funds involve investing in rather questionable business pursuits that may include: tobacco and alcohol products, firearms, drones used to “target” or kill political opponents overseas, and marijuana clinics in states where they’ve been declared “legal. The term “vice” funds may also refer to funding casinos in Las Vegas or online (or elsewhere) -- and far “darker” activities or products. Some investors really do put their money into online gambling and porn sites. They like the fact that once people get addicted to certain activities, they’re unlikely to stop – which can keep earnings quite steady, regardless of the economy.

Another definition for a “vice” fund indicates that it’s a “type of mutual fund that takes the opposite approach to socially responsible investing. With this type of fund, fund managers invest in a variety of stocks from companies that are considered to be vice stocks.”

Here are some other issues to consider when deciding whether to invest in “vice” funds.

How Successful Are Vice Funds Compared to Socially Beneficial Investments that Help People?

According to an article entitled, “Virtue and Vice,” published in Entrepreneur’s September 2014 issue, “Politically, at least in the mutual-fund universe, virtue has all but vanquished vice.” In other words, it’s far smarter from a political standpoint to always just invest in socially responsible products and services.

It’s important to know that the acronyms referring to good stocks keep changing. Some people still refer to socially responsible investments as “SRIs.” However, others now use the acronym ESG, which stands for “environmental, social and governance” since the realities tied to sustainability and risks are so important.

As for determining which types of stocks perform better, you can find strong arguments favoring both sides, particularly if you factor in the benefits of investing in companies that actually help people -- instead of catering to their worst or most negative desires. As one person who strongly opposes investing in vice stocks has put it, “addicting and killing your best customers is a terrible long-term business model.”

What Kind of People Are We When We Seek to Make Money Off Human Tragedies?

In the “Vice & Virtue” magazine article already referenced above, one person is named who actually began thinking about profitable investment strategies immediately following the ghastly massacre of the little children at Sandy Hook Elementary in Connecticut less than two years ago. This man knew he could make a quick profit – if he invested in Smith & Wesson guns right after the event since he knew many people would run out and buy more guns, afraid that the government would “crack down” on letting everyday citizens own assault weapons

You have to ask yourself – now that it’s statistically clear that a great many people are heavily addicted alcoholics and gamblers, how can anyone truly justify funding businesses that cater to such destructive addictions?    

The Vast Majority of 401(k) and Other Retirement Accounts Never Include Vice Funds

Fortunately, most American workers don’t want any of their retirement or pension accounts supported by vice funds (according to the “Vice & Virtue” article). As the author puts it, here in America, there’s still “a societal norm against funding operations that promote human vice, and consequently many investors may not want . . . to invest in [such] stocks.”

Instead, many companies try to include investments in 401(k)s like Calvert Investments which is “credited with forming the first socially responsible mutual fund in 1987.”