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Using Your IRA to Make an Impact

Building and Clocks

  |  By Christopher Orr, SDIP

At PENSCO we talk a lot about investing in what you know and love – but what about investing in what you believe?

It might seem like a fine point of distinction but impact investing is a term that is starting to be used more frequently in financial circles and among our clients. Reminiscent of socially responsible investing, the Global Impact Investing Network (GIIN) defines impact investing as “investments made into companies, organizations and funds with the intention to generate social and environmental impact alongside a financial return.”

In the past two years, sustainable, responsible and impact investing assets have jumped 76 percent from $3.74 trillion at the beginning of 2012 to $6.57 trillion at the start of 2014, according to a survey from the US SIF Foundation. Client demand was the top factor driving that growth, according to money managers who responded to the survey.

At PENSCO, where we custody alternative assets for our clients’ IRAs, we’ve seen clients who are passionate about the environment use their retirement funds to invest in clean energy or clients who want to support medical breakthroughs invest in biotechnology. By investing in these opportunities using their self-directed IRAs, our clients are helping to fund their retirement with investments that support their values. We often see clients pursue impact investment opportunities that are aligned with their charitable or philanthropic work. 

The rise of crowdfunding also means that it is becoming easier for investors to find impact investment opportunities. One place to start your research could be The PENSCO Marketplace®, which features a number of crowdfunding sites, including the recently added site Mission Markets which gives accredited investors access to impact investment opportunities, like renewable energy or sustainable agriculture.

It’s important to remember that impact investing is not the same as charitable giving. Impact investment opportunities can be risky and require long holding periods. Investors should approach these opportunities the same way they would any other investment and remember that each type of alternative asset has its own unique set of due diligence considerations. Investing through crowdfunding can also require another layer of due diligence.

But for investors who are comfortable investing outside of the traditional “stock and bond” market space, impact investing can help align your personal values with your investment decisions.

This Blog does not provide investment, tax, or legal advice nor does it evaluate, recommend or endorse any advisory firm or investment vehicle. Investments are not FDIC insured and are subject to risk, including the loss of principal.