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August 10, 2016 at 02:01 AM
Editor’s note: This article first appeared on BlackRock Blog and is reprinted here with their permission. Click here for the original post.
If you are a millennial investor — or just think like one — you are likely to have some very different attitudes about investing than previous generations. We conducted a survey and this one stands out for me: 67 percent of millennials say they want investments to reflect their social and environmental values. (For women, it’s 76 percent.) Putting your money where your beliefs are is a great idea.
What’s not a great idea is ignoring your retirement, and that is, unfortunately, a common millennial attitude as well. It’s hard to focus on retirement when you are starting out. According to our survey, only 36 percent of millennials monitor their retirement savings and only 38 percent increase savings when they can. There’s something ironic in worrying about the planet’s future while ignoring your own.
The good news is you don’t have to choose. If you have a sustainable investing strategy option in your retirement account that invests based on social or environmental criteria, you can help do some good for the world while also potentially doing some good for your retirement.
Make an impact on your future now
The sustainable investing approach is not new; endowments and pension funds have used similar strategies for decades. What is new is that sustainable strategies are becoming much less expensive and more widely available than ever before.
There are many variations. Some screen out industries that conflict with social or environmental objectives. Others may evaluate potential investments based on their Environmental Social Governance (or ESG) profiles, creating a scoring system to guide the investment manager to the most values-positive companies. Others target positive social and environmental outcomes through pure impact investing strategies.
And that creates an exciting opportunity. By investing in a sustainable strategy in your retirement plan, you can do some good right now, even as you do yourself some good later. If you are 30 years old today, that means your retirement dollars can be put to use for decades to build the kind of world you want to live in. That alone should get you energized about saving for retirement, no matter how far away it seems.
A little something extra
Ideally, sustainable investing should be your inspiration to make an additional retirement contribution above and beyond the money you are already saving in an appropriately diversified investment. Doing good should be your inspiration to do more for yourself.
The catch is that your workplace retirement plan may not have a sustainable option. That may be changing. Annual growth in these strategies has been approximately 33 percent per year in recent years. That rate of growth may increase following recent Department of Labor guidance on impact investing, which should encourage more 401(k) plans to offer such options. Ask your plan sponsor about adding an impact option.
