More people these days try to align their investing with their values. They don’t want their money supporting companies they feel act irresponsibly, such as creating toxic waste or depleting natural resources. They want to support companies that are environmentally responsible – improving the earth, not hurting it.
A good option for green-minded investors is socially responsible investments, or SRIs. These are investment vehicles – typically mutual funds or exchange-traded funds – that only invest in companies that meet a pre-established set of socially responsibility standards. Several SRIs today focus specifically on investing in companies with sound environmental track records, such as those that recycle, run on renewable energy or serve an eco-friendly purpose. (You can research SRI funds here.)
Since most employer 401(k) plans don’t offer SRIs, one good way to invest in them is through a Roth individual retirement account, or Roth IRA. These retirement accounts allow people to contribute up to $5,000 in 2012 ($6,000 for people age 50 and older) on an after-tax basis, with all earnings and withdrawals being tax-free in the future. Unlike 401(k)s, many IRA providers allow people to invest in a broad range of funds and other investments, including SRIs.
Here are some reasons to consider using Roth IRAs for your green and other socially responsible investments:
- You’re investing in your future, and the planet’s future. Most people need to save more for retirement. So why not further your retirement-savings goals while you support green causes? Roths are especially appealing in today’s economic environment, since taxes are expected to rise in the future. So you can pay taxes on your retirement savings today and not worry about paying them during retirement.
- Roths are a good place to hold high-growth investments. Since all earnings on Roths are tax-free, they’re especially beneficial for investments expected to grow. Many SRIs invest in companies with high-growth potential in today’s increasingly green economy, such as alternative energy companies or green product makers.
- You never have to tap funds during your lifetime. Unlike 401(k)s and traditional tax-deferred IRAs, Roths never require you to make withdrawals during your lifetime. So you can invest long-term in companies you want and, eventually, if you choose, pass along the tax-free benefits of the Roth to your heirs or charitable causes.
Keep in mind that it’s a good idea to thoroughly research any investment opportunity, including its investment objectives, its performance history and its fees and expenses, before investing in it. You can find a wealth of information on various mutual funds and exchange-traded funds on Morningstar.com.
Kelly Spors writes for the leading Roth IRA and online retirement planning resource, RothIRA.com. She is a former Wall Street Journal reporter who has also written for The New York Times, Entrepreneur magazine, SmallBizTrends.com and Yahoo!. Kelly specializes in personal finance and small business issues.