If you're the type of person who takes the time to read the label when you're spending a couple of dollars on cage-free eggs or fair trade coffee, you're also probably someone who doesn't want to sink your retirement savings into companies you don't actually believe in.
But if you don't happen to have a couple of million dollars to wave in front of a financial planner, it can be difficult to have much say in where your money ends up. A new IRA is different: with a minimum investment of $500, it's possible to invest only in companies that are pioneering sustainable business practices.
"This has historically been only available to the wealthiest investors," says Andrei Cherny, CEO of Aspiration, an online investment firm. While some other options, like certain mutual funds, eliminate the worst ethical or environmental offenders from their portfolios—like fossil fuel companies—the new IRA goes farther, screening to find companies that are taking the lead in investing in sustainability.
It's a strategy that makes sense for long-term investments like retirement accounts. "Ultimately what our investing strategy is about is about investing in companies that are thinking about the long term, as opposed to trying to turn a quick profit," Cherny says. A company investing in more efficient buildings, or better health care for employees, for example, might have a short-term cost, but over the long run, they'll save money.
By offering the new IRA, Aspiration hopes to attract investors—especially millennials—who haven't necessarily been planning for retirement. "A lot of the clients who have been coming to Aspiration just don't have any retirement savings whatsoever," says Cherny. "So we really spent a lot of time thinking about how to solve that pain point for people, because we know that America has a huge savings crisis."
The company offers a unique pay-what's-fair fee structure for all of its investment products, including the IRA. In theory, if you wanted to pay no fee at all, you could. They're also marketing the IRA as an individual "reinvention" account rather than a retirement account, as a way to get millennials thinking differently about what retirement means.
"Retirement has a connotation around being something for people in Florida condos eating the early bird special, and maybe doesn't mesh up with how we see our lives unfolding," Cherny says. "So we've really tried to move the conversation in a different way."
The IRA doesn't include fossil fuel companies, a sector that is already costing other investors money—one recent analysis calculated that the New York State Common Retirement Fund lost around $5 billion over the last three years because of its fossil fuel holdings. Oil, gas, and coal are likely to be even more of a bad investment in the future.
"Companies that are still focused primarily on fossil fuels—at a time that we see the economy moving in a different direction—are ones that are perhaps not taking the right kind of long-term steps to make their company viable in the years to come," says Cherny. "It maybe means their management isn't thinking creatively, and is holding onto what they have in an industry that is not going to be having the same kind of impact in the future that they had in the past."
It's also an industry that faces huge risks. "You look at a company like BP that never recovered in terms of its stock price from the impact of the oil spill," he says. "So another part of this strategy is we're thinking about the companies that are minimizing the risk of making decisions that are going to hurt them over the long term."
Sustainability was a critical piece of the design as the company worked to fill a gap in the market. "Young people are ... looking to those kinds of signals about the values of a companies, about the product and how it was made, and I think they're looking for the same kind of thing in the investing world, but haven't necessarily been seeing it," he says.