When you embark on your career path and start to think about the benefits of investing for the long term, it is often overwhelming and hard to understand what your investment choices will mean for your financial future, let alone how those choices will impact society and the planet. If you start early enough and stick to an action plan, not only can you give yourself the peace of mind that your retirement is secure, but you can also join a growing movement to help shape a better future for our families and the planet by aligning your values with your investment portfolio. You can feel good about what you are invested in, and your portfolio can exhibit lower risk and outperformance over the medium to long term by taking environmental and social factors into consideration.
Create a Plan and Start Now
The first step to attaining long-term financial freedom is to create a plan, start investing right away, and stick to it. Most people avoid planning for retirement because they fear that it is too complicated and that it may impact the lifestyle they want right now. The truth is, it is straightforward, and you can start with small amounts so that you can take your time getting used to the changes in your finances.
Start by finding out if you have the option to invest in an employer-sponsored plan or if you need to set up your own retirement plan with an individual retirement account (IRA). Anyone with earned income can contribute to an IRA.
Next, find out how much you can comfortably afford to contribute to your retirement. There are limits, but most folks do not max out their retirement contributions unless they are making a lot of money. It is all about balance and taking advantage of options. If you have access to an employer-sponsored plan that matches your contributions, it is a smart idea to contribute the maximum that they will match, at least. If you are contributing to your own individual retirement account, you do not have to contribute the maximum, but if you can, there are some great tax benefits to doing so.
The main point is to find a comfortable amount, figure out how often you want to contribute (once a year, monthly, every paycheck, etc.), and create a habit out of it so that it becomes a natural behavior.
Align Your Values
The next step is to align your values by selecting investments in your account that resonate with what you believe in. Think about what kind of future you want your kids to grow up in and which companies are going to be leaders in our ever-changing world.
Maybe climate change is an important issue for you, and you are aware that certain types of companies may act more responsibly than others. You might be concerned about the devastating wars that are being waged across the globe and want to avoid weapon manufacturers. You may be concerned with humans being unnecessarily imprisoned and want to avoid companies that profit from that activity.
Whatever your values are, it is important to look at the companies that you are investing in and see if you feel comfortable with them. It is key to feel good about the investing you do and so it will require some level of research.
Some employer-sponsored retirement plans will not have many investment choices though. You may have to compromise some of your values occasionally for the convenience of using the plan. Individual retirement accounts on the other hand can invest in a broad variety of investments including stocks, bonds, mutual funds, and index funds. Investing in your own IRA will give you the most choices that align with your values and there are many investment funds available that tailor to environmental or socially responsible investing preferences.
Monitor and Enjoy Returns
Once you have created a plan, chosen how much to contribute, and selected investment choices that align with your values, you can start to monitor your account and start enjoying the returns. It is a good practice to compare your account’s returns against those of the broader market and consider any disparities.
We are at an exciting time in history where you do not have to sacrifice investment performance to align your values with your portfolios. Recent studies have shown that portfolios that consider environmental and social principles exhibit lower risk and outperformance over the medium to long term. This is an inspiring and worthwhile journey of investing in the products, services, and innovative processes that heal the planet and meet our human needs.