Impact Investing Through a Self-Directed Retirement Plan

Published on January 2, 2020

Younger investors are changing the investing landscape as they start putting more of their dollars into sustainable investments. This category of investments includes those that consider environmental, social, or government practices.

More and more, millennial investors want to include investments that align with their values within their retirement plans—including their self-directed IRAs.

According to the Morgan Stanley Institute for Sustainable Investing, interest in sustainable investing (SI) has grown among the general population and even more so among millennial investors in recent years.

• In 2015 among the general population, 71% of those surveyed indicated they were interested or very interested in SI in 2015. In 2019, that rose to 85%.
• In 2017, 84% of millennials were interested or very interested, which rose to 95% in 2019.
• When it came to actually having sustainable investments:
  • In 2017, 42% of the general population and 50% of millennials had sustainable investments.
  • Today, 52% of the general population and 67% of millennials do.
• Investment into sustainable funds has nearly tripled in 2019 from the prior year ($13.5 billion to date).

To name a few ways that social impact investing is showing up in self-directed retirement plans, investors have been including assets such as organic farmland, FINtech, innovative startups, or renewable energy. Popular target investments cited in the Morgan Stanley report were those related to plastic reduction and climate change.

The social impact side of this is important to investors – a majority (83% of the general population and 89% of millennials) said they believed their sustainable investments could create economic growth and reduce poverty. Around one-third of these investors (33% of the general population and 36% of millennials) are also screening investments in order to avoid putting money behind something they object to.

Sustainable investments in a self-directed IRA
Given that self-directed investors have more options in terms of the types of investments their plans can include, it’s no surprise that those interested in supporting environmental and social causes, innovations, and companies are including organic farmland, renewable energy resources, or innovative startups within those plans.

Some other examples of social impact and sustainable investing are:

• Climate mitigation projects
• Clean energy projects or companies (wind, water, solar)
• Organic farms, sustainable tree farms
• Affordable housing
• Equity funding in companies that produce devices that increase water or energy efficiency or life-saving medical equipment for rural areas or Third World countries

Self-directed investors make all their own investments decisions – usually based on experience with assets they already know and understand. Self-direction can be a powerful way to put what moves investors most into their retirement plans because it can give investors better control over their earnings. Added benefits of self-direction include portfolio diversification for investors who also wish to continue investing traditionally, and a hedge against stock market volatility.

If you’d like to learn more about the many options available through self-direction as a retirement strategy, register for one of Next Generation’s complimentary educational sessions. Alternatively, you can contact our team directly by phone at 1-888-857-8058 or by email at NewAccounts@NextGenerationTrust.com.