One common concern with faith-based investing is whether excluding certain companies or sectors will hurt your portfolio's diversification. The good news: with the right approach, you can stay well-diversified while honoring your values.
Why Diversification Matters
Diversification — spreading your investments across different assets, sectors, and geographies — reduces risk. If one sector struggles, others may offset those losses. It's one of the most fundamental principles of sound investing.
The Screening Challenge
When you apply faith-based screens, you're removing some companies from your investment universe. For example:
- Excluding alcohol and tobacco removes parts of Consumer Staples
- Excluding weapons affects parts of Industrials and Aerospace
- Excluding fossil fuels removes much of the Energy sector
While screens do narrow your investment universe, modern markets offer thousands of publicly traded companies. Even aggressive screening typically only excludes 5-15% of available investments, leaving a vast pool of aligned options.
Strategies for Maintaining Diversification
1. Replace, Don't Just Remove
For every sector you screen out of, look for aligned alternatives within that sector. Not all energy companies are fossil fuel producers — many are leading the renewable energy transition.
2. Broaden Your Horizons
Consider international stocks, bonds, and alternative asset classes to maintain broad exposure even after screening.
3. Monitor Sector Concentration
Use Mustard's Portfolio page to check your sector allocation. If any sector exceeds 25-30% of your portfolio, you may want to rebalance.
4. Use the Alignment Score as a Guide
A 100% alignment score isn't always the goal if it means concentrating in just a few sectors. Sometimes a 85-90% score with better diversification is the wiser choice.
The Bottom Line
Faith-based screens typically remove only 5-15% of available investments. That leaves thousands of companies to choose from. With thoughtful portfolio construction, you can honor your faith and maintain a well-diversified portfolio.