How Your IRA Can Work for Change and Help the Next Generation

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That 401(k) from your last job remains where you left it. Your current IRA is on autopilot. There's a good chance you don't even remember what they're invested in. These accounts are still at work building your retirement savings, but they're also doing more than that.

Every investment dollar you put out in the world impacts people and the planet. Some of those impacts are positive and some are negative, but for better or worse, those impacts are helping shape the future that the next generation will inherit.

Most people never tell their retirement dollars what to do beyond "grow." But if that's all you're telling them, you're missing an opportunity to do more. What kind of future do you want for your retirement? What do you want to leave behind for your children and grandchildren?

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Of course you want your investments to increase in value so that you can retire comfortably, but you also want them to do so in a way that creates long-term, sustainable value for future generations. It's a simple notion, and it's easy to do by aligning your retirement investments with your values.

Don't just think about your IRA as a vehicle for retirement savings — think of it as part of the legacy you'll leave behind.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

What's in your portfolio?

Most people own mutual funds in their retirement accounts, through which they typically invest in stocks and bonds. Your account dashboard probably abstracts these investments into a performance graph and a target number, but that hardly tells the whole story.

In reality, your investments support a wide variety of businesses that have far-ranging impacts on customers, workers, communities and ecosystems around the world.

When you invest in a standard index fund, you own a little bit of everything, including companies that may have significantly negative social and environmental impacts:

Companies that make money by selling harmful and/or addictive products, such as cigarettes or gambling services
Companies that are disproportionately contributing to global emissions and climate change
Companies that are narrowly focused on short-term profit without regard for the long-term health and sustainability of the environmental, societal and financial systems that underpin their success

What most people don't realize is that they have options. You can choose to invest in companies that are creating value for people and the planet, rather than extracting it.

Would you rather invest in a company that profits from the mass proliferation of firearms or in a company developing life-saving medicines? Would you rather invest in a company that blindly sources materials from suppliers that exploit migrant labor or in a company with robust supply chain standards and monitoring programs?

The good news is, you don't have to pick and choose individual companies yourself. There are funds that do the research and make these decisions for you.

By investing in impact funds — actively managed mutual funds with environmental and social goals and standards — you can continue to build retirement savings through diversified portfolios that are better for people and the planet while helping ensure that your children and grandchildren inherit a more sustainable and equitable future.

Impact fund managers recognize that what's good for people and the planet is also typically good for business, so they encourage the companies they invest in to operate in a responsible and sustainable manner. Here's an example of what that impact looks like in action.

In Vermont, dairy farmers have been calling on Hannaford Supermarkets to join Milk with Dignity, a program that was created to establish basic labor standards around fair pay and safe working conditions for the dairy industry.

This past spring, an impact investing fund invited those farmworkers to attend the annual general meeting of Hannaford's parent company, Ahold Delhaize, to present concerns to the board of directors and other shareholders.

After the meeting, company management agreed to continue a dialogue with the farmworkers. This access would not have been possible without impact investors opening the door.

Any retirement account can help drive this kind of impact, if chosen well.

Values without buzzwords

Unfortunately, impact funds are not immune to jargon that can make investing so needlessly complicated for individuals.

Our advice is to tune out the buzzwords. You'll want to look for funds that publish clear environmental and social investment standards, show how they engage with companies to drive change, and regularly report to fund shareholders on their efforts and progress.

Ask:

What are this fund's sustainability objectives?
Does the fund manager explain how they avoid investments that might undercut those objectives?
Do they have clear and transparent standards?
How do they measure and report on progress?

It's also worth looking at how the funds use sustainability metrics to pinpoint opportunities to create positive change.

For example, impact investors generally recognize that the transition to a low-carbon economy is critical, not only for the future of our planet, but also for the long-term sustainability of our investment portfolios.

Impact funds should show that they are working to reduce the carbon intensity of their portfolio and mitigate exposure to climate-related risks.

Reducing exposure or divesting from fossil fuels and high-emitting sectors is only part of the solution. Impact investors are also working with companies to develop robust climate action strategies that include science-based emissions reduction targets and plans for transforming their business models to align with and contribute to a just and equitable transition.

Impact investors get results when their funds are actively committed to driving progress. Dramatic change rarely happens overnight, but by pointing their retirement savings to work on change, investors can help raise the bar for corporate behavior and drive meaningful progress toward sustainability.

Putting it together

The start of the year is the perfect time to consider your retirement savings and a shift to impact investing. If you have an old 401(k), request a direct rollover. If you make an annual IRA contribution, think about where it's going, and make sure you're picking funds that reflect both your financial goals and your values.

It probably won't feel very different once you make the shift. You'll still get your periodic account statements and have access to dashboards and performance graphs. The value of your account will rise and fall with the market over time — hopefully building toward long-term savings.

Try not to go back on autopilot. Continue to scrutinize your investments and make sure the funds in you invest in are disciplined in their approach and are investing in portfolios that fit your goals and values.

Communication and transparency are important, so look for regular reporting. Make sure your fund managers are letting you know what your money is doing. It's their responsibility to trace a direct line between your investment dollars and real-world impact.

Financial markets often boil real things down into numbers. An impact fund manager should work in reverse — that is, helping you interpret real impact from the numbers.

The impact may not seem very big at first. After all, an individual's retirement wealth is tiny compared to the amount money flowing through the stock market. But when you invest in a mutual fund, your investment dollars are pooled with those of others.

By collectively aligning your retirement portfolios with your shared values, you can be a unified voice for positive change in the world.

So don't just invest for your retirement. Invest for the next generation. Put your money to work building a better future for your children and grandchildren, and leave them a legacy of financial stability and environmental and social responsibility.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Carole Laible is the CEO of Domini Impact Investments, an SEC-registered investment adviser with an exclusive focus on impact investing. She has nearly 30 years of impact investing experience. As CEO, she is responsible for the firm's overall research and mutual funds operations. She serves as a portfolio manager for the Domini Impact Equity Fund and the Domini Sustainable Solutions Fund and oversees investment strategy and subadviser due diligence for the Domini Impact International Equity Fund and the Domini Impact Bond Fund.