Socially Responsible Investment Options For Retirement Savers

25 June 2020
 Categories: Finance & Money, Blog


More employees are asking their workplaces to add socially responsible investment funds to their 401k plans. Individuals planning for their retirement want to place their money in investments that have a social purpose. SRI investing is not only about investing with a social conscious. Its twin goals are to support environmental, social, and governance (ESG) goals while earning a competitive financial return. 

If you want to invest ethically while saving for retirement, the following are SRI investing options for retirement plans.

401ks and Other Retirement Plans

Most 401k plans allow investors to choose from a universe of funds. The fund companies with the majority of retirement assets under management  (i.e., Fidelity, Vanguard, Blackstone, Schwab) are making it easier for retirement savers to choose SRI funds. They are adding more SRI target date funds, ETFs, and mutual funds. 

If you want to add SRI funds to your 401k, fund houses are making it easier to search for socially conscious funds by applying the SRI screen. To evaluate the suitability of an SRI fund for your portfolio, most retirement plan providers provide a proprietary or third-party fund rating based on investment performance and risk. Alternatively, Morningstar is a good source of comprehensive ratings and analysis of funds. 

Target funds 

A popular emerging asset class with socially conscious retirement savers is SRI target funds. Target funds are the preferred way to invest for retirement in retirement plans. Over 21 percent of retirement assets and 59 percent of new contributions are in target funds. They are popular because they automatically adjust the asset allocation from stocks to a higher allocation of more conservative bonds over time. If you are seeking SRI target funds, a financial advisor specializing in socially responsible investments can introduce you to the growing selection. 

Self-Directed 401ks and IRAs

If you have a self-directed retirement plan, you have more flexibility in choosing SRI funds. Traditional retirement accounts are limited to traditional funds. SRI funds are still sometimes classified as alternative assets, although they are quickly going mainstream. 

Self-directed plans benefit from the same tax-deferred benefits as other retirement plans. Additionally, you have the option of investing in alternative assets, such as real estate, commodities, and cryptocurrencies. The custodian who holds your investment assets becomes your plan administrator. As the major fund houses add more SRI funds, the DIY investor has more choices of sustainable funds to invest in.

Millennials are twice more likely to invest in companies with a positive social and environmental impact. As millennials start investing for their retirement, a stream of new SRI retirement options will be offered.