In a previous post I recommended investing in index funds in order to minimize expenses and better increase your nest egg. Unfortunately, though, many of the companies contained within a standard index fund conduct activities that are in opposition to Catholic teaching. For example, the owner of Rick’s Cabaret strip clubs, RCI Hospitality Holdings (RICK stock ticker), is held by, among others, Vanguard Total Stock Market Index Fund (VTSMX and VTSAX). When you purchase shares in VTSMX or VTSAX, you purchase fractions of shares in the owner of Rick’s Cabaret. So what is a Catholic to do?
Educate yourself regarding Catholic investing guidelines and make informed decisions. The United States Council of Catholic Bishops (USCCB) released “Socially Responsible Investment Guidelines” in order to provide guidance on this topic:
In summary, we have a moral responsibility to avoid investing in organizations that operate in opposition to Catholic teaching.
But, how is a person supposed to navigate through the hundreds or thousands of funds an index fund, much less multiple index funds, invest in? Thankfully, Catholic mutual funds exist and do this work for us. Ave Maria Mutual Funds is an example of one of these companies and Ave Maria has two funds, the Ave Maria Rising Dividend Fund (AVEDX) and the Ave Maria Growth Fund (AVEGX), that are rated well by Morningstar. The 0.92% expense ratio for AVEDX and the 1.17% expense ratio for AVEGX are very high, though, in comparison to Vanguard’s fund lines. Working against Ave Maria in this case are the active management they have to perform for both funds, as fund managers must weed out non-Catholic organizations, and the sheer size of Vanguard funds, as Vanguard can drive their expense ratios lower (VTSAX has an extremely low expense ratio of 0.05%!!!) due to VTSAX’s $141 billion in holdings versus AVEDX’s $789 million in holdings.
Catholic investors can look at the 0.85% difference in expense ratios between VTSAX and AVEDX and know that the extra money they are paying is helping to build the kingdom. That being said, I really wish Ave Maria would consider lowering their expense ratios, as the extra 0.85% in expense makes a huge difference over time.
If you were to invest $10,000 into VTSAX with no future investments, a 7% rate of return, and the 0.05% expense ratio, in 30 years you would have $74,989. (Calculations done on calcxml.com)
If you were to invest the same $10,000 in AVEDX with no future investments, a 7% rate of return, and the 0.92% expense ratio, in 30 years you would have $57,689. That’s a difference of $17,300 when your investment compounds over 30 years. That extra 0.85% in expenses wasn’t so small after all.
Unfortunately, until Ave Maria Mutual Funds has more money under management, it will likely not be able to leverage economies of scale in order to reduce expenses. We meet our initial goal, though, of putting our money into investments that comply with Catholic social teaching, and this is certainly worth some extra expense.