Gun companies and your money: The truth about divesting — and what might work even better

Consumers in favor of greater gun control in the United States are increasingly aware that to influence corporate behavior, it helps to speak with their wallets; meanwhile, companies are reacting to the heat — or trying to get ahead of it — as calls for boycotts and more sweep the nation.

Take grocer Kroger, which announced Thursday it would stop selling firearms and ammunition through its Fred Meyer stores to buyers younger than 21. The supermarket chain joins Dick’s Sporting Goods and Walmart, which both said Wednesday they would stop selling guns to customers under age 21. These announcements follow reports that United and Delta have ended partnerships with the National Rifle Association, as have car rental brands Hertz, Enterprise and Avis Budget, as well as insurer MetLife.

There are other signs that this moment is different from those following previous mass shootings. Unlike after other shootings — which have tended to send gun industry stock prices up — Wall Street’s response to the Parkland shooting has been different this time around, as CNBC reported. In the three months following the five largest mass shootings, according to CNBC, stock prices for Sturm, Ruger & Co. and American Outdoor Brands — two of the biggest publicly traded gun stocks — were up an average of 9.3% and 8.3% respectively. Yet roughly two weeks after the mass shooting in Parkland, Florida, both companies are still in the red.

But before gun control advocates celebrate that as welcome news, it’s important to note that many Americans actually invest in those companies and don’t even know it. And divesting of gun investments could be far trickier than, say, boycotting Florida as a spring break destination.

Indeed, three quarters of American Outdoor Brands stock is owned by large institutional investors, according to data from Nasdaq. The three biggest of those investors are Blackrock, Invesco, and Vanguard: three of the largest providers of retirement products like mutual funds, index funds and ETFs — the likes of which you might see in your 401(k).

Furthermore, if you’re invested in an index fund that tracks the S&P 500, you also are probably already invested in Walmart, which remains the nation’s largest retailer of firearms and ammunition. If you are determined to stop investing in guns, you can try to figure out if you invest in relevant stocks using the suggestions offered here by MarketWatch, Quartz and the New York Times — but the point stands that you might have to upend your retirement portfolio in order to fully divest of all gun-related stocks.

How did so many gun-control supporters wind up invested in the gun industry to begin with? One of Wall Street’s most Main Street-friendly innovations has been the rise of investment products that are both cheap and diversified: index and exchange traded funds.

These passive funds are easier than ever to “set and forget.” They are cheaper than so-called “active” funds, since they don’t rely as heavily on professional stock pickers — and this low-cost investing doctrine has seriously caught on. In 2017, the New York Times noted that Vanguard, the asset manager that pioneered the approach, was “growing faster than everybody else combined.”

Of course, there is a drawback to automating everything — and using monolithic funds that are trickier to unpack — particularly for the investor of conscience. Indeed, investors of all ideologies are increasingly looking for investment products that reflect their values, leading to the rise of more so-called socially responsible investment funds.

Andrei Cherny, co-founder and CEO of Aspiration, offers such funds, and says little-guy investors have more power than they realize. “When you’re investing in the traditional stock market index, you’re investing in the major gun companies, you’re investing in the major companies driving the fossil fuel industry,” Cherny said. “Lawmakers need to step up to the plate and do better, but the flip side is true. We also just can’t wait for Washington, D.C., to act, when we as individuals have enormous power.”

The drawback is that these socially responsible funds often cost much more to invest in: To figure out how much money you’re paying to your investment managers, you generally want to look for something called the “expense ratio.” The industry average is typically about 1%, which seriously adds up, but automated funds can typically run at around 0.1% or even lower. Over the course of a 30-year investment, that can add up to thousands of dollars of money saved in fees — or not.

Now, a few thousand dollars may be worth it to many people for a lifetime of more ethical investing. And some funds professing to be socially responsible, like those offered by Aspiration which are firearm and fossil fuel-free, allow customers to choose a fee they think is fair.

But moving your retirement account is risky and potentially costly, especially if you’re among the nearly 5% of employees receiving a corporate match on your employer-provided 401(k), according to a recent industry report. For those people, divesting from the gun industry completely would mean leaving money on the table, regardless of the fees they end up paying.

And the sad truth of activism through these financial measures, as LifeHacker’s Alicia Adamczyk points out, is that when people divest en masse from gun stocks, they will likely make the price of those stocks a lot cheaper. Wall Street likes a bargain, and if shares get cheap enough, other buyers will come forward. For that reason, revisiting your investments should probably be a supplement to your activism.

An alternative? As an investor in gun stocks or retailers, you actually have a different kind of power — as a shareholder. In fact, stock ownership has been a particularly effective route for some activists, particularly for organizations like PETA, which through the introduction of what are called “shareholder resolutions” have achieved a number of corporate policy changes, including the phasing out of live orca shows at SeaWorld and the use of vegan alternatives to leather at car companies like Tesla.

Another more direct move: Donating money to the causes you care about can be a route to supporting those efforts; likewise, you might join social media campaigns putting pressure on individuals who sit on gun maker’s boards. And while you might have little influence over the contents of your 401(k) plan, your employer might — if that’s a topic you feel comfortable broaching with them.

Though you can increasingly get quality, ethical investments without sacrificing your values, changing your stock portfolio probably shouldn’t be considered an alternative to contacting your elected officials about the policy changes that are truly important to you.

Sign up for the Payoff — your weekly crash course on how to live your best financial life.

March 1, 2018, 10:45 a.m. Eastern: This story has been updated.