In the past few months, I’ve been thinking heavily about investing for retirement. I’ve never had a job with a 401(k) or retirement plan, so my retirement planning has been entirely on my shoulders. Unfortunately, for a long time that meant no retirement planning. Once my business stabilized a little and we got more important stuff (like health insurance) squared away, I decided that it was time to take my future into my own hands. I opened a Roth IRA and bought a couple of low-cost index funds. According to my research, that was the best approach for a casual investor since it represents a bet on the future of the entire market rather than on the future of a particular company.
The moral drawback is that I’m investing in companies I disagree with, like RJR and Exxon. The mechanical drawback is that our economy can’t sustain the kind of market growth we’ve seen in the past (at least, not without also causing the kind of market crash we’re seeing now). The alternative is sustainable investing.
Sustainable investing has two parts: investins in sustainable organizations and investing in a sustainable way. Sustainable organizations have both sustainable products and sustainable business practices. Obviously, drilling for oil isn’t sustainable because eventually there won’t be any more oil. Problematic business practices are often harder to figure out, but just ask yourself if it could work forever. For example, outsourcing to developing countries for cheap labor isn’t sustainable because eventually prices will increase. On the other hand, supporting a living wage is a sustainable business practice because it can be supported indefinitely (and, as Henry Ford realized, it can help create or expand a market for your product).
Investing in a sustainable way requires treating your money the same way that you’d treate any non-renewable resource. This means taking a long-term view and focusing on growth. Money primarily grows through compound interest, so you want to avoid touching your nest egg as much as possible.
As long as you like your local credit union, the easiest way to invest sustainably is to put your money into a savings account or certificate of deposit (CD). It’s not risky, which means that your principal is safe, allowing you to treat the interest as a renewable resource (think of it as tree farming). This money will also go to work in your community by supporting local businesses and individuals through bank loans.
Unfortunately, saving account and CD rates are currently at an all-time low. The best rate I can find locally is about 2.5%, which is less than inflation. Once the economy picks up, so should rates, but this means that CDs probably aren’t the best investment choice right now.
The two other big options are stocks and bonds. Although they have their own problems, I’ll talk you through the basics of investing sustainably using both in the next couple of articles.
The second part, on investing sustainably in bonds, is now up!