(MONEY Magazine) – Q As someone who cares a great deal about the environment, I would like to invest in environmentally responsible mutual funds. Where can I find out about them? --Charles Fischer, Philadelphia
ANSWER You've got plenty of company. Buoyed by the interest of do-good investors, so-called socially responsible funds now hold $32 billion, up more than 150% from five years ago. Morningstar tracks more than 80 such funds. Most screen out weapons makers, environmental polluters and alcoholic-beverage makers from their portfolios. (There are also a few conservative funds, which buy defense stocks, and religious offerings, which ban companies involved in birth control.) Beyond that, each fund has its own definition of "socially responsible," which may not match yours. For example, Pax World Balanced (PAXWX) favors companies that demonstrate "environmental responsibility," but it owns oil and gas stocks, while Sierra Club Stock (SCFSX) excludes fossil-fuel companies.
To find a fund that fits your convictions, first go to socialfunds.com or to social invest.org, where you can find lists and brief descriptions. Then visit fund websites to get more details about how stocks are chosen, and go over a recent annual report to see what stocks the fund holds. Finally, take a close look at expense ratios, since many of these funds are costly. Two less expensive options: Ariel (ARGFX), a small growth fund in the MONEY 50 with a reasonable 1.07% expense ratio, and Vanguard Calvert Social Index (VCSIX), with a miserly 0.25% expense ratio.
Q Is it correct that the federal government protects investors in some retirement plans, such as 401(k)s and 403(b)s, from creditors in the event of bankruptcy, but not IRAs? --Barbara Segal, New York City
ANSWER Good news--the laws are changing. It's true that Individual Retirement Accounts until recently lacked federal creditor protection. Instead, these accounts were governed by state laws, which varied widely. But now IRA investors have stronger protection. For starters, the U.S. Supreme Court recently ruled that IRAs (except for Roth IRAs) are shielded under federal bankruptcy laws. That decision limits the protection to the "amount reasonably necessary for the support of the debtor and any dependent," which means that only a portion of IRA assets may be protected in the case of large accounts.
The bankruptcy law signed by President Bush in April, however, expands IRA protection beyond that ruling. The new law, which becomes effective in October, shelters as much as $1 million in IRA contributions and earnings from creditors, as well as amounts rolled over into IRAs from employer retirement plans.
As for qualified retirement plans, such as 401(k)s and 403(b)s, they continue to be governed by the federal law known as ERISA, or the Employee Retirement Income Security Act, which provides sweeping debtor protection.