Today, people like you and I, are demanding more from our investment portfolios. It’s not enough to just make a return on our investments. We want purpose-driven retirement accounts that offer great returns while investing in sustainable companies.
I am a huge advocate of the Roth IRA, because of its tax-free compounding interest upside. To learn more about the difference between a Roth and a regular IRA you can read my prior articles “ Roth IRA: How to Become a Millionaire by the Time You Retire! “ and”Tax-Free Money: The Secret of Buying Gold Inside of a Roth IRA”.
One of the biggest benefits of having a Roth IRA is that there is no requirement to draw an RDM (required minimum distribution). So, what is an RMD you ask?
Let’s fast-forward to your 72nd birthday (70 ½ if you reach 70 ½ before January 1, 2020). Just after you blow out the birthday candles on your cake, you’ll be subject to a required minimum distribution (RMD) from your traditional IRA.
Remember, Uncle Sam allowed you to take a tax deduction for all those years when you were funding your traditional IRA account. Now, he wants his cut. The IRS is still waiting to tax all that money it has left alone for so long.
Benefits of Having a Roth IRA:
Taking an RMD is not a big deal if you’re already retired at age 70½ and are living off your retirement savings.
But if you’re a financially flush member of the silver-haired set, who doesn’t necessarily need to withdraw funds from their IRA, the distribution is much less appealing. Especially if you are in a higher income bracket (from your other streams of income).
If you don’t take your RMD every year starting at 72, there is a 50% penalty on the amount that you should have withdrawn!
Traditional IRA’s aren’t the only accounts that have the RMD provision. Other accounts subject to an RMD are 401(k) plans and employee stock ownership plans (ESOPs).
Yet another benefit of having a Roth IRA is that the IRS provides for an automatic spousal rollover if the spouse is the sole beneficiary. That means the surviving spouse automatically becomes the new owner of the Roth IRA upon the death of the original owner.
Saving is the Core of Investing: The Rule of 184
If you invest $100 a month and receive an 8% return each year, in 10 years you’ll have $18,444.
This means that the opportunity cost of every $100 spent per month is $18,444 in 10 years.
You can apply this to any $100 increment. Take a look at your current spending habits and ask yourself, “Can I find $100 to invest with?”.
This tactic is similar to the $5 a day rule that I talk about in a prior blog.
Remember, you should run your personal finances like you were a company. Just like a business, you have income and expenses.
When you are itemizing your monthly bills, ask yourself is it really worth it?
What if you put $100 per month in an ETF that invests in sustainable companies? You would be supporting sustainable companies by allowing them to produce healthier and better products.
Capital allows sustainable companies to invest in R&D, which leads to newer/better materials and products.
“How the Economic Machine Works” by Ray Dalio
Ever wonder why we have economic boom and bust cycles? Well, Ray Dalio does a fantastic job of explaining how the economic machine works.
Ray Dalio is the founder, Co-Chief Investment Officer, and Co-Chairman of Bridgewater Associates. In 2012, Time Magazine named him “One of the 100 Most Influential People in the World”. Bridgewater Associates is a global macro investment firm that is currently the world’s largest hedge fund.
Ray is an active philanthropist with an interest in oceanographic research and conservation. Additionally, he is a participant in The Giving Pledge (a commitment to give more than half of his wealth to charity).
Ray created a fantastic short film that explains why we have business cycles (30-minute video).
You can read Ray’s most recent economic update articlehere.
To get Ray Dalio’s “All Season’s” stock portfolio diversification percentage numbers, read Stocks: A Diversified Portfolio.
How to Invest in Sustainable Companies:
Recent reports show that socially responsible ETFs now have over $10.63 billion in assets under management (at the time of this writing). The size and power of these funds prove that ESG investing cannot be overlooked. With an incredibly low average expense ratio of 0.42%, sustainable ETFs are becoming hard to ignore.
The largest socially responsible ETF is the iShares MSCI KLD 400 Social ETF DSI, which has around $1.38 billion in assets.
Over the last year (LTM at the date of this writing), the best performing socially responsible ETF was the LRGE fund, which reigned in a whopping 20.23%.
ETFs are the way to go, due to their incredibly low cost. According to Nerdwallet.com, a 1% fee could cost $590,000 in retirement savings over 40 years.
So now that we have covered how you can make money by investing in sustainable companies, let’s talk about how you can save money by being green at home.
How to Save Money by Going Green:
Here are a few easy actionable steps that can help you save money by going green:
- Run your appliances at night…Energy rates are usually higher during the day, so run your dishwasher and washing machine before you head to bed.
- Typically you spend less per unit when you buy things in bulk, and it helps reduce the amount of packaging you use per item.
- Freezers with top opening doors release less cold air than ones with doors that open outwards.
- Remember to stock up when an item is on sale! I buy non-perishable items in bulk (careful not to purchase perishable items in bulk unless you have space in your freezer).
- Warning: Don’t be fooled by buying too much of a perishable item unless you can freeze it.
Whether you believe in global warming or not, one thing is sure. We are using our resources in an unsustainable manner. Currently, we are using more natural resources each year than the planet can naturally replenish. This challenge impacts every individual on this planet, regardless of social-economic status or physical location.
I find it odd that high schools don’t teach children about sustainability or how to manage their finances. These two topics impact everyone, yet we don’t teach our students about personal finance or sustainable living. The result is that people grow up and go out into the world without the proper preparation to handle their finances or what it means to live in harmony with the planet.
It’s no wonder why so many people are in debt or live month-to-month. Every person on this planet is impacted by the monetary system and everyone has a financial report card, so why isn’t it part of the mandatory school curriculum?
My goal is to help as many people as possible make smarter financial decisions and live a more sustainable lifestyle!
Like what you see? Stay a while!
- How to Invest in Socially Responsible Companies while Timing the Market
- Financial Planning: Tax-Free Benefits from a Life Insurance Policy
- 8 Ways to Save for a Down Payment on a Home and a Roth IRA
- Roth IRA: How to Become a Millionaire by the Time You Retire!
Feedback is always welcome, so feel free to comment below!
