Have you ever felt the ick factor?
The Ick Factor: That icky feeling when you believe in certain values (social justice, environmental progress, etc.), but know that your money is supporting all the things you hate (sweatshops, private prisons, fossil fuels, etc.). Synonym: steel plate in the head phenomena (keeping your social values on the left, investments on the right).
As Managing Director of Pi Investments with a decade in the social investment field, I am tasked to help families align their money with their values. They are the type of people you may be secretly jealous of for their ability to live graciously -- they always take a mug to the coffee shop, bike just about everywhere (with kids in tow on the back), and are thoughtful on social justice issues. In general, these people are extremely intentional about their everyday life decisions in a quiet way that is simply thoughtful, not obnoxious.
And yet, their investment portfolio didn't match them at all -- like a family of vegans wearing bright pink mink coats. It wasn't their fault; they were simply invested in the same things as anyone who walks into a financial institution will be sold. Their cash was kept at a big-name bank, notorious for funding mining and land grabs in South Africa, and for its exciting role in the mortgage crisis that left thousands of U.S. homeowners on the streets. And of course, don't forget the stock market, which within its hundreds of publicly held companies includes crowd-pleasers like fracking operations, private prisons, tobacco companies, and more banks doing increasingly deplorable things.
The problem is that once you know this, the "ick factor" sinks in and is very hard to remove from your awareness.
But not to fear -- you can look forward to restful nights and ick-free days. The solutions are really simple.
Just move your money!
Four steps are presented below -- no longer than 30 minutes each. So once you work up the will, you could be two hours from an ick-free life. And as you'll see -- many of these options actually provide you with better service and better investment returns, so it's a complete win-win.
Step 1: Break Up With Your Bank
Chances are, your money is sitting at Bank of America or Wells Fargo. Presumably, every time you call or walk in you have to go through eight security checks to get any transaction done, and every few months you're sure to find some unexpected late fee or maintenance fee. Oh, and your money is likely going to fund all sorts of terrible stuff.
The good news is that there are a number of community banks that can do all the stuff you'd typically want including free checking and savings, free ATMs, depositing checks through your cell phone, all the bells and whistles. And most importantly -- they are FDIC insured, meaning your money is equally as secure as it would be at a major bank, backed up by the federal government.
The following banks have all the above services and rates that are comparable or better to the (dismal) interest rates offered by conventional banks these days. They also have the perk that even with a small amount of money, you'll actually have a good, old-fashioned banker -- someone you can call or email directly without waiting for half an hour to crappy music, who will literally know you by first name.
So, in essence -- better service, without the ick. It starts to feel like a pretty obvious choice.
Even if you don't live in one of these states, besides from the first document you'll need to sign and send in, you don't really need to have any interaction with a branch if you don't want to -- everything can be done online these days. If you prefer to find a community bank, credit union or coop in your local area, check out CDFI Locator for listings.
What does it take to break up with your bank? It's actually pretty fun, and takes about 10 minutes total. I had banked at Bank of America since I was child, and gave them a break-up call a few years back. The conversation went like this:
BofA Representative: What can I do for you today?
Me: I'd like to close my accounts.
BofA Representative: OK, ma'am, no problem, I can do that for you. Can you please tell me why? Can I convince you to stay?
Me: I am concerned that Bank of America is supporting businesses that do terrible things like fracking, mining, and supporting human rights abuses. I don't want to be a part of that, so I'm moving my money to a community bank. Can you please write that down in the notes for your supervisor?
BofA Representative: Um, oh. I can put that in my notes. Is there anything I can do to convince you to stay?
Me: Yes. Can BofA improve its social and environmental policies to be a better global citizen? If not, then I cannot continue to support them.
BofA Representative: I'm sorry ma'am. I can help you close the account. Where would you like me to send the check or wire?
Me: Please send to New Resource Bank, routing number xxxxx, account number xxxx.
BofA Representative: OK. This will be executed within 48 hours and your accounts will be closed.
I include the full conversation above to show it's really that simple and quick even if picking up the phone might be intimidating. Add an extra 20 minutes to provide your new account number to anything that's on auto-pay, and the whole thing takes you 30 minutes, tops.
I'll note that one major thing community banks often don't do is provide mortgages. Before I broke up with my bank, I called first to check and see if having been a loyal, 20 year client at BofA would make a difference when it was time to buy a house. Would I be sacrificing any "relational capital" I had built?
And the sad thing in our crazy world of financial disintermediation, is that having 20 years of being a client with a perfect track record makes ZERO difference in your ability to access a mortgage; as your mortgage will be sold three times before you make your second payment. So don't worry -- you're not missing out on anything.
Step 2: Start Your Rainy-Day Fund
You hopefully have some money in your savings account that you envision as a rainy-day fund: a few months of paychecks or mortgage in case of any shifts in your life, whether you're saving for a wedding, down-payment for a home or other major life events -- something that you don't intended to touch in the next few years.
Especially given that savings accounts are offering less than .1 percent in interest these days (dismal, right?), it can be worthwhile to put some money into a longer-term instrument that will give you 3 percent or more. If you wind up having to take the money out early in a true emergency, you typically just sacrifice some degree of interest -- which given that you would've made so little at a bank it's not much of a risk; and certainly shouldn't lose you any money. Most of these longer-term offerings, called private debt funds, have some layer of philanthropic money from foundations serving as a guarantee for any losses, similar (though not quite as secure) as the way the FDIC protects banks.
The following organizations provide much higher interest rates than a bank, and also offer you the opportunity to get a much more targeted impact if there is a specific area of social change you want to support. For instance, at the time of writing, Bank of America offered a .07 percent return for a 1 year investment with a $10,000 minimum -- a full 6 times less than any of the below, with as little as $20 minimum -- making these the best kept secrets in finance!
They are just a sample list of options available. This can also be a fun way to "gift" a college fund to a favorite niece or nephew rather than an old-fashioned savings bond.
The typical process is either that you can just sign up online (as easy as making a Kiva loan or Amazon purchase), or in the case of MDIF, sign a single page document and send in a check. Once again -- maximum time investment, 30 minutes to decide on your most exciting impact opportunity, and send in your check!
Step 3: Clean Up Your Stocks
You may have stocks that you manage yourself through a platform like Fidelity, or you may be paying a financial manager at a firm like Morgan Stanley to make those choices. Often, they simply ask you if you're risk level A, B, or C, and then provide extremely limited information about where your money actually is. As New Resource Bank says, "Do you know where your money sleeps at night?" If you don't -- then presume it's not good.
If you're on Fidelity, you can find the following choices (and so many more) and simply invest in them yourself; or you can provide this list as an example to your financial advisor, in addition to asking what social platforms they already have. Once again, these are just a few of the myriad of options available -- from mutual funds to REITs to ETFs. (If you don't know what those are, don't worry -- your financial advisor will be impressed!
Will you make less money? Multiple research efforts have said no. In general, its tough to say, mostly because as we've seen time and time again it's easy to make or lose money in the stock market no matter what. For instance -- people who divested from fossil fuels this past year dodged a bullet. An Associated Press commissioned study found that a $1 billion endowment that divested from fossil fuels would've saved a whopping $119 million , enough for 850 4-year scholarships. But markets are always cyclical, so it's tough to make a strong statement either way about how efforts compare.
In general, proper diversification is probably more important than whether or not your funds have a social screen. And for those who have a long-term investment horizon, it's hard not to think that bad choices companies are making now, like over-investing into non-renewable resources, will not impact their long-term returns. This is part of why major insurance companies like SwissRe and pension funds like NYCERS have implemented environmental, social, and governance practices; not because of any social conscience, but simply out of concern for their long-term viability.
Your financial advisor is likely to respond saying that this is a terrible idea, and you'll lose money. What they are likely thinking, but not saying is that they make more money if they can sell you their branded products, or that they simply don't know enough about social investing to be useful, and don't want to lose a client. This doesn't make them bad people -- they are just doing their jobs like the rest of us.
If you have a truly resistant advisor, there are luckily no lack of financial advisors with decades of experience incorporating their clients values into their investments (and making them money!). You can get a list of people in your area through First Affirmative, a network of socially-oriented advisors across the country. As you can imagine, financial advisors who have chosen to dedicate their careers to social investing tend to be pretty cool people -- you might not only wind up with a new financial advisor, but a new friend or hiking partner as well.
Step 4: Retire In Style
Employer-provided retirement accounts are sadly becoming more and more rare, but if you're lucky, you may have one.
If you have an employer-sponsored account, there may be a social choice option already (TIAA-CREF has one for instance). But to ensure that a variety of options can be added to an employer plan, Social K is a great option -- it's very cost-effective even for small organizations or non-profits as a platform for retirement funds.
If your job doesn't offer a retirement plan, or you're an independent contractor, you may want to start an IRA or Roth IRA through your financial advisor or bank, which has major tax benefits. These retirement funds can be managed in a social fashion as well -- either by opening your account at one of the social banks listed above, or check out Green Retirement which offers a variety of fossil-fuel free options.
How do you start a retirement fund? It's a lot easier than you might imagine -- and definitely under 20 minutes.
1. If you have an accountant, call and ask them first what kind of account they would recommend for you -- IRA, Roth IRA, SEP IRA. Presuming you like your accountant, go with what they say; don't worry too much about the differences but here is a quick overview.
With a traditional IRA, savings are not taxed in the year you make the deposit, until you retire and take the money out. With a ROTH IRA, savings are taxed in the year you make the deposit, but NOT when you take the money out.
In general -- think that for every $5,000 you're able to save, you can get over $1,000 "free" from the government to pay for a few extra margaritas on the beach. The question is, do you want those margaritas now, or when you retire? If you can hold out, you may be behooved to delay your gratification, but it's very specific to your personal financial situation, so take your accountant's word over mine.
2. Save up. Typically for a traditional IRA or Roth IRA you can contribute up to $5,500 per year; self-employed people may be able to put away as much as a fifth of their income if you can spare it.
3. Call whichever community bank you chose in Step 1 and ask if they offer that kind of account. If they say yes, fill out the paperwork and write the check (by December 31 if you want the tax benefit that calendar year -- the clock is ticking!)
4. If your bank can't do it, try another from the list or call Green Retirement to see what they can offer you.
At the end of the day, its YOUR money -- so take charge!
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