The Social Dilemma

I recently watched an incredibly powerful documentary on Netflix called The Social Dilemma.

Here is an official summary: “We tweet, we like, and we share – but what are the consequences of our growing dependence on social media? This documentary-drama reveals how social media is reprogramming civilization with tech experts sounding the alarm on their own creations.”

It’s not easy to watch, but I believe it is necessary information for all of us to live healthier lives and live in a more peaceful society.

This got me thinking about questions I often get about investing in a socially responsible way. I have been pondering this a lot lately with my own financial journey. Am I contributing to these societal problems by passively investing in potentially harmful companies through index funds? If so, what should I do about it?

I’m not an economist, but here are my two cents.

Let’s look at the S&P 500 index, which tracks the stock prices of 500 of the largest public companies in the US and is a common benchmark for the US stock market. Pretend for a moment that the whole index is one big pie with 500 slices.

All 500 companies in the index do not represent equal sized slices of the pie. The 10 largest companies in the index make up a bigger slice of the pie than the 10 smallest companies in the index, meaning the biggest companies have more influence over the stock market’s performance and hold a larger percentage of many index fund portfolios.

So what’s the dilemma?

The social problem here is that some of the largest companies in the US stock market include big tech companies like Facebook, Amazon, Apple and Google (each mentioned often in the documentary) along with oil companies, tobacco companies, drug companies and others that look to earn profits first, often at the expense of humanity.

So if you invest in an S&P 500 index fund or something similar, you are investing in these types of companies. This is what worries people.

But there is some good news

The good news is that the biggest companies in the stock market are constantly changing. Amazon, Facebook and Google are among the biggest players in the S&P 500, but 20 years ago none of them were even included in the index (Facebook wasn’t even public until 2012!).

This is the evolutionary cycle of the stock market. The old gets replaced by the new over time.

And speaking of evolution, I think it’s becoming increasingly obvious that the world we live in is changing right before our eyes. Many people feel like the world is falling apart, and in some ways maybe it is.

But I look at it a little differently. I see the old way of life is breaking and being replaced by the new.

Sexist and racist CEOs are being found out and fired, more cars are becoming environmentally friendly, our mental health is becoming a much larger issue than ever before, drug companies are being exposed for jacking up their prices, and we are now learning that social media and big internet companies are causing tremendous psychological and societal damage which will promote awareness and change.

The way life used to be just isn’t working anymore. And I believe that by the time we are ready to withdraw from our big investment portfolios years from now, the companies that are interested in earning profits above all else will become dinosaurs, and the new market leaders will be companies like Tesla, which aims to serve humanity first and make a profit second.

So as passive long-term investors, what can we do to help this positive change take place?

The biggest way we can make changes individually (along with voting) is not so much by what we invest in, but rather how we spend our dollars.

Huge food conglomerates that use harmful chemicals and treat their livestock like commodities cannot continue to dominate if we eat more whole organic foods or even have just a little less meat on our plates. Oil companies can’t be as environmentally destructive if more car companies like Volkswagen invest heavily in electric car production. And spending a little less time on our smartphones will not only lead to better mental health and stability, but also result in less profit for the massive companies constantly trying to manipulate our minds for their financial benefit.

As the demand for these harmful products goes down, new and more expansive companies will naturally take their place. And I believe this new wave of companies will have to be much more transparent and socially conscious than the generations before. Because we will demand it.

All in all, I see a big shift occurring right now. The world as we know it is changing, more truth is coming out and I believe it is going to be for the better. Continue to be more intentional about how you spend your money and your time, and good things will happen.

And as this expansive cycle unfolds before us, we can exhale and simply stay the course as long-term investors. We will help fund the leaders of tomorrow and then get rewarded for their altruistic efforts as our portfolio grows over time.

Win-win.