Finance

You Might Be An Unwitting Investor In America's Private Prison Nightmare

Your money ending up in places you don't like is not something that is going to change overnight.

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Private prisons are not very popular. Unless you’re an Orange Is the New Black screenwriter, you probably don’t have much use for them.

But you might be making money off of private prisons nonetheless. No, I’m not talking about this in a general we’re-all-part-of-the-system-that-allows-this-to-happen sort of way. I’m talking about you, the one who likes dogs and sometimes visits old people, literally owning part of a for-profit prison company.

A few weeks ago, I wrote about the many benefits of passively managed index fund investing. I’m not changing my tune on any of those — it is still probably the best way for you to gradually build wealth over time. Yet, this type of investing does have a darker side. When you invest in a huge bucket of stocks, you make money, but you don’t always know about (or control) exactly what it is you’re making money from.

Last week, I was watching the “Adam Ruins Prison” episode of the very entertaining television program Adam Ruins Everything. Naturally, I got to wondering if any of my mutual funds contained stock in a for-profit prison company.

So I did some digging. Turns out, this information is not hard to find. In late 2016, the Corrections Corporation of America, the modern-era original and now the second largest private prison company in the United States, was renamed to the more palatable-sounding “CoreCivic.” CoreCivic’s stock price actually has not done all that well over the last 20 years, but the stock does offer nice dividends, potentially making it an attractive buy for the amoral value investor. Right there, value-investing away as CoreCivic’s biggest investor, is The Vanguard Group, my very own mutual fund provider.

Just because your mutual fund provider has holdings in a certain stock does not necessarily mean that your specific fund holds that stock, which is why the list of the top 10 mutual funds holding CoreCivic stock comes in handy:

  • Vanguard REIT Index Fund
  • iShares Core S&P Mid Cap ETF
  • Vanguard Small Cap Index Fund
  • Vanguard Total Stock Market Index…
  • iShares Russell 2000 ETF
  • Vanguard Small Cap Value Index Fu…
  • Fidelity Japan Fidelity US REIT M…
  • Vanguard Extended Market Index Fu…
  • SPDR S&P Mid Cap 400 ETF Trust
  • Fidelity Low Priced Stock Fund

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That list hit me like a punch in the gut. I own shares in one of those funds.

I toddled around my house feeling vaguely sick the rest of the night after looking at that list. I didn’t and I don’t want anything to do with that company, not even a tiny, fractional portion of it. But the sad truth is, short of converting all of my money into gold bullion, there’s not a whole lot I can do about it.

When you have a 401(k) or some other type of retirement account through your employer (which is how the majority of us do our investing), you typically have a pretty limited range of good investment options to choose from (if you have any choice at all). Even if you do have a private non-retirement investment account with a broader spectrum of investment options, you still run into the same problem with any mutual fund: they all have a bunch of different stocks in them, so they all contain stocks of at least one or two controversial companies. If you individually sorted through all of the stocks in any given mutual fund, you would find stock of some personally objectionable company in pretty much every single one of them.

This doesn’t mean you have to completely lose hope. Learning what is in your mutual funds is a good first step. If you are like me, and one of your mutual funds is on that list, it sure wouldn’t hurt if you called your investment company and asked why. That won’t make a difference if only a few people do it, but it certainly could if hundreds or thousands of people do. You could also explore the relatively new concept of impact investing. Small companies like Swell and others in the space are offering targeted investment packages focused on the stocks of companies advancing some facet of the common good, although for the time being the cost of impact investment means it is not (yet) an equivalent wealth-building tool compared to something like Vanguard.

Your money ending up in places you don’t like is not something that is going to change overnight. It’s a recurring problem of commercialism in general in some regards. But at least take the difficult first step toward doing the right thing. When something is making you money, the natural human impulse is not to ask too many questions. Well, damn it, you need to ask some questions, to paraphrase John F. Kennedy, not because it’s easy, but because it’s hard. We can all do better.

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Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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