Your Impact Guide

How Much Should You Save?

Most financial advisors recommend saving 15% of your income for retirement, or about per year. The good news is that this includes any employer match – so if you contribute 5% and your employer matches 5%, then you are already saving 10%!

You can expect to have about by the time you reach years old. That’s about per month in income during your retirement years. But according to your estimates, you will need about per month to retire.

Of course, whether that’s enough depends on things like whether you have a mortgage and whether you want to retire before qualifying for Medicare at age 65.

* We are using the so-called 4% rule when drawing down a portfolio in retirement and we assume a 3% average annual inflation rate.

Where Should You Invest?

Most financial advisors recommend investing about of your portfolio in stocks and in bonds or other fixed-income investments at your age. That said, you may also want to consider allocating a percentage of your savings to alternative investments to diversify and make a greater impact (more on that below). For example, the 60/20/20 portfolio has become a popular option, where you allocate 60% to stocks, 20% to bonds, and 20% to alternative investments. And, of course, you may want to keep in an emergency savings account that’s accessible at any time.

Let's take a closer look at each of these areas:

• Stocks: Equities, or stocks, represent a fractional ownership in a public company that is tradeable on a stock exchange, like the NYSE or NASDAQ. Most investors hold stock indexes, like the S&P 500 index, which consists of 500 stocks weighted by the underlying company's market valuation. Stocks have historically appreciated in value by about 8% per year over the long-term, but they tend to be quite volatile in the short-term.
• Bonds: Bonds are a type of debt instrument that represents a loan to a company or government. They are typically issued with a fixed interest rate and maturity date. Bonds are considered a safer investment than stocks, but they also have a lower expected return. Bonds have historically appreciated in value by about 4% per year and they fluctuate less than stocks, making them ideal for those that need money soon.
• Cash Savings: Cash savings are typically held in a bank account, money market account, or certificate of deposit. With minimal minimum holding periods and very low volatility, cash savings is accessible at any time in the event that you need it to cover an emergency expense. But, of course, they don’t pay as much interest as a bond nor do they offer the upside potential of an equity.

In addition to public stocks and bonds, alternative investments have become an increasingly important asset class. These investments may be equity-like or bond-link and include assets like real estate, private equity, and venture capital. While they are not as liquid as publicly-traded asset classes and may require a minimum investment, they can provide diversification and potentially higher returns than traditional investments.

The JOBS Act of 2012 paved the way for Regulation A and Regulation CF (crowdfunding), making it easier for non-accredited investors to invest in private opportunities typically reserved for wealthy accredited investors. Between 2012 and 2020, the amount of Regulation A offerings rose from $6.4 trillion to $15 trillion – and that figure continues to rise. Based on the information you provided above, you may be able to invest per year in these kinds of private investments.

How Can You Make an Impact?

Most conventional stocks, bonds, and alternative investments do little to help make the world a better place. For example, Exxon Mobil is the tenth largest holding in the S&P 500 index while Philip Morris, ConocoPhillips, Chevron, and other “sin stocks” are among the 50 largest holdings. Meanwhile, many popular private investment opportunities, like Fundrise’s eREITs, may be contributing to the housing affordability crisis.

Fortunately, there are several ways that you can make a positive impact on the world within equities, bonds, alternatives investments, and even cash savings.

Stocks

Most investors are familiar with environmental, social, governance, or ESG, investments. Financial advisors, exchange-traded funds, and mutual funds pitch these as a way for investors to align their portfolio with their values. Under the hood, most of these funds work by excluding certain companies, such as oil companies or weapon-makers, from a benchmark index like the S&P 500. The idea is that you aren’t supporting these companies since you don’t own them.

While these funds don’t hold “bad” stocks, they don’t necessarily support noble causes either. You’re still holding Apple, Microsoft, and other mega corporations that don’t really need your investment capital. In other words, your money isn’t making a real impact on the causes you care about. And worse, these funds are forcing many oil and gas companies to sell off their dirty assets into private markets where they face far less scrutiny!

There are a few strategies you can use to make a bigger impact:

• Inclusionary Investing – Carbon Collective is a robo-advisor that avoids investing in “bad” companies and diverts that portion of the portfolio into “good” companies. That way, you’re supporting climate action while maintaining a diverse portfolio. By investing in these companies, you can lower their cost of capital, enabling them to borrow money with a lower interest rate or issue stock without the risk of over dilution. These lower funding costs can help companies grow faster.
• Proxy Voting – Engine No. 1’s Transform 500 ETF holds the S&P 500 index – just like many conventional index funds – but it uses your collective voting power to propose and pass social and environmental causes at a board level. For instance, Engine No. 1 successfully installed new ExxonMobil’s board members dedicated to helping it transition into a sustainable future. And, Carbon Collective actively pressures other companies in its portfolio to make climate positive decisions with its proxy votes.

In addition to public equities, you may want to consider private equity through Regulation A or Regulation CF offerings. These opportunities enable you to invest in things like startups tackling climate change or small businesses on Main Street to make a bigger impact. While there’s less liquidity and potentially more risk, you’re providing capital directly to the business rather than lowering their cost of capital, potentially making a bigger impact.

Browse Impact Stocks →

Bonds

Bonds provide a more direct way to support high-impact causes since you can choose to fund a specific project. For instance, a government may issue a green bond to finance a renewable energy project, meaning that any loan you make directly supports that specific project. But, of course, bonds typically have a lower return than equity investments, so it’s usually not practical to only invest in bonds when saving for retirement.

There are several ways you can make an impact with bonds:

• Bond Funds – Many bond funds make it easy to invest in green bonds or affordable housing (through specific mortgage-backed securities). Since these bonds typically have high minimums and little liquidity, bond funds are usually the best choice. For example, the VanEck Green Bond ETF invests in a portfolio of green bonds, meaning you won’t suffer if a single issuer has trouble repaying what they owe.
• Small Business Bonds – Mainvest, SMBX, Worthy, and other companies make it easy to loan money to small businesses under Regulation A and Regulation CF. These loans also typically have higher interest rates than aggregate bond funds, but you generally cannot sell them before they are repaid. As a result, they may not be ideal for investors that may need the money before the bond is repaid.

Browse Impact Bonds →

Alternatives

Alternative investments are a valuable way to diversify your portfolio by introducing assets that aren’t correlated to the stock or bond markets. In other words, these investments don’t move in lock-step with the overall market. And, as crazy as it sounds, simply adding these investments can help improve your risk-adjusted returns. Fortunately, you can also use them to make a much bigger impact than holding publicly-traded securities and assets.

There are many ways to make an impact with alternatives:

• Real Estate – SmallChange makes it easy to invest in private real estate projects that adhere to social or environmental goals. For instance, you can support affordable housing projects or projects that promote walkability. And historically, real estate has proven to be a great way to diversify a portfolio.
• Agriculture – Steward lets you invest in regenerative agriculture projects through either its broad loan fund or specific opportunities. By doing so, you’re helping local farmers feed people healthier foods closer to their homes. And, of course, farming is a capital-intensive business!
• Small Business – Mainvest, SMBX, Worthy, and other platforms are making it easy to invest in small businesses that drive vibrant economies. While Apple may not even know what to do with your money, many small businesses pay high interest rates to banks and could benefit from a lower cost of capital.
• Renewable Energy – Raise Green, Energea, Renewables, and other platforms enable you to support climate-focused startups, solar farms, wind installations, or even hydroelectric dams, bringing more clean energy online. In many cases, you earn money from the power generated, making it a predictable source of income.

Browse Crowdfunding Platforms →

Cash Savings

The four biggest banks in America lend more than $200 billion of their customer deposits each year to fossil fuel companies. Meanwhile, hefty bank fees often disproportionately impact low-income households. Fortunately, there are better ways to ensure that your savings is supporting your local community or other high-impact projects. And, best of all, you can usually earn a better interest rate than the largest banks!

There are several ways to make an impact with cash savings:

• CDFIs – Community development financial institutions, or CDFIs, support low-income communities and businesses. Many CDFIs provide banking services or offer short-term savings notes that you can use to deploy your savings for good. Others may offer checking and savings accounts that you can use instead of a national bank.
• Impact Notes – Calvert Impact Notes, CNotes, and other impact notes provide a high-impact alternative to certificates of deposit and other savings vehicles. Rather than supporting banks, you can support local communities, farmers, and entrepreneurs around the world, building more vibrant economies.
• Neobanks – Atmos, Aspiration, and other climate-focused online-only banks make it easy to ensure that your money is a force for good. They also provide a set of online tools and analytics to help you track your impact over time. In many cases, they put customer deposits to work funding large alternative energy projects.

Browse Impact Banks →

How to Get Started

The hardest part of impact investing is getting started. After all, it’s stressful to start moving money around when you’re relying on it for retirement or other needs. You may not fully understand the rules around switching retirement fund providers or have a hard time trusting a climate startup with your hard-earned cash. Fortunately, you can overcome many of these emotional hurdles by coming up with a plan.

Start with the Basics

Before building a plan, it’s worth noting that most people should start small rather than going all-in. That way, you can risk little to understand how things work before making any big moves. Another tip is diversifying your exposure to these different asset classes and investment opportunities to ensure that your fate isn’t tied to a single organization. (That’s one reason we built VirtueVest to help aggregate these opportunities!).

Here are some ways to get started:

• Start by automating your savings into a climate-friendly bank or a platform like Worthy that offers liquidity rather than keeping it in a big bank. In many cases, you can earn a more attractive interest rate, making it a win-win and low-hanging fruit!
• Start diverting some of your new retirement contributions into an impact-focused financial advisor or specific assets before transferring all of your assets. Advisors are usually the easiest step since they can help you with any tax or legal questions.
• Start reinvesting proceeds from your current CDs into impact notes as they mature or slowly invest each month or year into an impact fund. These are a better place for long-term savings and often provide excellent interest rates as well.

Setting Up Accounts

You can make investments into publicly-traded assets using a number of different accounts. If you’re new to investing, you can get a feel for these accounts below, but it’s usually a good idea to speak with a fee-based or income-focused financial advisor. They can help you choose the best accounts to minimize your taxes and maximize your retirement income.

The basic account types include:

• Traditional IRA – Traditional IRAs allow you to make pre-tax contributions, which is ideal when you expect to be in the same or lower tax bracket when you retire. You receive an immediate tax benefit and your contributions grow tax-deferred. You can take out contributions penalty-free after age 59½ and distributions become mandatory after age 70½ – limiting the ability to leave money to heirs.
• Roth IRA – Roth IRAs allow you to make after-tax contributions, which is ideal when you expect to be in a higher tax bracket when you retire. You don’t receive any immediate tax benefit, but your contributions grow tax-free (a big deal if you’re young). You can take out money penalty and tax-free after five years (contributions only) and age 59½ (all money) and there are no mandatory distributions, making it a helpful estate planning tool.
• Brokerage Accounts – Brokerage accounts have no withdrawal limits, but you owe capital gains taxes when you sell. It’s usually a good idea to hold assets for at least a year before selling them to benefit from the lower long-term capital gains tax rate.

When investing in private assets, you can open a self-directed IRA, or SDIRA, to hold these assets. SDIRAs are only available through certain custodians and typically involve a higher expense and complexity than conventional IRAs. Of course, you can also hold private assets in taxable accounts or on their own, where they’re subject to ordinary taxes.

Are you ready to start impact investing? Start building your portfolio now!