Current ethical IRA options
February 25, 2020 2:05 PM   Subscribe

I have a retirement account that rolled over from a previous job and which I can, at long last, afford to start paying into again. I want to find the most ethical place to put my money. (Understanding that no investment is going to be perfect and it's still participating in capitalism.) I'd prefer to put my money into an IRA and, frankly, the less interaction required on my part beyond a monthly contribution, the far more preferable.

Pretty much what it says on the tin -- the last questions I could find about this were from around 2008 or earlier. (Which. Hah. Oh dear.) I would particularly love to be able to invest in green energy and entities working toward sustainability. No weapons manufacturers is non-negotiable, but I also recognize that no investment company is going to be 100% wholly and eternally in line with my ethics. But, y'know, not investing in Big Oil is also the goal here. I'd love to hear people's recommendations!

(Also, please forgive me if I've misused terms, or been too vague or something. I'm really new to all of this, and happy to provide answer questions/provide more info.)
posted by kalimac to Work & Money (8 answers total) 11 users marked this as a favorite
This will depend a lot on your brokerage. For example, Vanguard has a list of ESG (“environmental/social/governance”) index ETFs that would seem to fit your bill. More info here. Other brokerages may or may not offer similar options but it should be relatively easy to transfer your money over if it’s not tied to your old job anymore.
posted by un petit cadeau at 2:27 PM on February 25, 2020 [2 favorites]

First of all, you can put your money into an IRA and just... leave it as cash. You don't need to invest it in anything in particular. So if you don't object to keeping your money in a bank, there's no reason not to keep it in an IRA - if you're debating whether to contribute to an IRA for the 2019 tax year, just do it! Go to Vanguard or your regular bank and open an account right now! You can always change your investment mix later, or roll the IRA over to another company entirely.

What you're interested in is called "ESG" investing - Environmental, Social, and Governance. It's getting easier for small-time investors to do this but it is still more expensive and time-consuming than, say, an index fund-based portfolio or a target-date fund. You're going to get a lot of people encouraging you to just put your money in index funds or a target date portfolio and donating the money you save compared to an actively-managed ESG fund to charities. This is an idea that has merit - an actively-managed ESG fund might cost you 1-2% of your investment every year compared to an index fund portfolio. If you've rolled an old 401k or two into your IRA and you have say, $100,000 to invest that's $1-2K a year. Another easy path to take would be to put all of your IRA in a single ESG fund that matches your values, but just be careful: sometimes the fees on these are very high. Avoid anything with fees > 1%, and seek out funds with fees < 0.5%.

It is a bit more work to build a balanced portfolio with ESG products but the good news is that more and more ESG mutual funds and ETFs are being created all the time! Fossil fuels are a little harder to avoid than companies with bad labor practices or weapons manufacturers, but fossil fuel free (or "lite") products do exist. Here's an article about Building a low-cost fossil-fuel-free ETF portfolio. Here are some low-cost ESG products from Vanguard, a shareholder-owned low-cost investment firm (I love Vanguard). I believe that ordinary people with a few tens or hundreds of thousands of dollars will be able to make really fine-grained decisions about what they will and won't invest in, really soon*, but for right now I would go with low-cost ESG funds (or ETFs, which are a lot like funds).

* for wonky reasons like more and more brokerages offering free trading, automated rebalancing, and fractional shares, which are not really relevant to OPs question.
posted by mskyle at 2:34 PM on February 25, 2020 [6 favorites]

Another search term is "socially responsible investing." However, this can mean a lot of different things and there are various specialized mutual funds that focus on different aspects of "ethical" investing. Some take a more religious angle (no alcohol or gambling), while others focus on good corporate governance, sustainability, green tech, etc.
posted by Pfardentrott at 2:41 PM on February 25, 2020

I use this one (Aspiration's Redwood Fund).
posted by pinochiette at 4:28 PM on February 25, 2020

I have had positive experiences and solid returns over a couple of decades with Green Century Capital Management. They use ethical screens. They use their position as shareholders to engage with companies to improve their behavior. The fund management company is owned by a group environmental nonprofits. You can create an IRA directly with them, or purchase their mutual funds through your brokerage.
posted by Winnie the Proust at 7:03 PM on February 25, 2020

The Calvert funds are socially responsible and fairly steady. They have a record of introducing progressive motions, and occasionally passing them, or otherwise effecting change, to and on the corporate boards where they hold stock.
posted by amtho at 8:26 PM on February 25, 2020

Vanguard offers a socially conscious fund.
posted by Ragged Richard at 7:17 AM on February 26, 2020

Thank you everyone so much! Most of what I learned from this question is how incredibly little I do know. I wound up making an appointment with my credit union to go over my options and actually understand what IRA's are and how they work, but I'm definitely leaning towards Vanguard or the Calvert funds. I had come up on the Redwood Fund before, and it's good to know that, like, another human being has used it and it's for real. (And it looks easy enough to just invest in, if I wind up splitting my money a few ways.)

Thank you again, everyone, for your time and help!
posted by kalimac at 3:25 PM on February 26, 2020

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