Why You Should Be Investing in Sin Stocks in 2021

The growth of investing has also coincided with the rise of Socially Responsible Investments (SRI). SRI portfolios purposely exclude sin stocks, also known as vice stocks. However, although SRI may be the moral approach to investing, you could be leaving vital weaknesses in a well-balanced portfolio.

The key to building your investment portfolio is to diversify. A focus on SRI stocks could inadvertently leave you facing massive losses.

So, if you have no moral qualms about making a profit from sin stocks, here’s what you need to know.

What are Sin Stocks?

Sin stocks typically boil down to the four major industries of alcohol, tobacco, gambling, and firearms. They can, however, also include businesses that are heavy polluters or those that engage in poor labor practices. Some people even argue that Amazon could be a sin stock because of their attitude to worker’s rights.

The fact is that sin stocks consistently make a profit over time. A single dollar invested in the tobacco industry in 1900 would be worth $6.28 million in 2015. Over longer periods, sin stocks consistently generate the biggest gains.

Long Term Sustainability

Humans will always have a demand for war, booze, tobacco, and gambling. Unlike other industries, sin stocks arise from industries where there’s a constant demand.

In the long term, building massive wealth through sin stocks is a smart and intelligent strategy because these industries are already largely futureproofed.

Undervalued Stocks

Sin stocks are known to be perpetually undervalued because large numbers of investors go out of their way to avoid them. This lack of demand means they are typically more stable and are considerably more likely to be undervalued.

Look at the demand for different stocks by choosing your favorite charting software platform. Check out this great TradingView review for a low-cost charting analysis option for your sin stocks.

In conclusion, where stocks are undervalued there’s huge potential to invest and grow your wealth.

More Predictable Markets

Predictability is something investors seek but rarely get. Sin stocks come from some of the most predictable markets in the world. They are often largely shielded from economic developments, such as inflation and interest rates.

For example, smokers don’t quit smoking because inflation rose this year. Gamblers aren’t going to quit gambling because of rising interest rates.

Predictable consumption patterns provide a level of certainty. For many investors, sin stocks offer a relatively safe haven because the demand is always there.

Recession Proofed Investments

The dreaded threat of the recession makes every investor squirm when managing their portfolios. However, the predictable consumption patterns inherent in various vices make sin stocks a great way to defend the value of your portfolio against major market declines.

Data shows that sin stocks tend to rise during recessions. It makes sense because if you’ve lost your job are you likely to head to the gym or buy a beer?

Intelligent investors often make huge profits during recessions through sin stocks.

Build a Regular Income

When you educate yourself on investing you begin to understand that balancing stocks that pay a regular dividend and stocks that grow is critical for securing your long term financial future.

Sin stocks are well-known for rewarding investor loyalty through regular dividends. In particular, defense stocks pay some of the highest dividends around.

Defense spending tends to go into long term projects, which generates regular profits for those businesses. For investors looking at dividends, defense stocks are a type of sin stock that can offer that regular annual income.

What is the Inherent Risk in Sin Stocks?

Sin stocks aren’t perfect and they do come with the inherent risk of being vulnerable to government action. Companies that focus on a single product could be laid low if pressure groups take action against them and their business model is made illegal.

Tobacco companies successfully managed to pivot when stricter anti-smoking laws were introduced, but it required years of turbulence.

This is why when you invest in sin stocks it’s important to only look at companies that are themselves well-diversified.

Not All Sin Stocks Were Created Equal

Investing in sin stocks doesn’t make you a bad person. The fact is many investors may never dream of investing in firearms because they consider it immoral. On the other hand, they may see no harm in gambling or alcohol.

It’s important to balance out the potential for profit and your own personal moral code. Either way, conduct appropriate due diligence on every stock you consider investing in.

With investing being easier than ever before, focus on your long term goals, such as buying a house or saving for retirement, and adjust your investing strategy based on that.

Creating a well-diversified, well-balanced portfolio is ultimately what will see you through times of economic prosperity and market crashes.