Nov 21, 2017 Finance

The Retirement Saving Strategy You Probably Haven't Considered Yet (But Should)

by Megan Beauchamp

When it comes to your finances, do you take a head-on or head-in-the-sand approach? If you identify with the latter, the good news is you're not alone. The bad news? You're not alone. New data suggests that when it comes to managing money, women are not as independent as you'd expect. In fact, 91% of women in heterosexual couples are not participating in financial decisions. But we want to change that statistic. Enter our finance series, The Paper Files, where we uncover tricks and tips that will help you manage your money and your future. Ready to take it head-on?

PHOTO:

Badlands

In theory, investing your money is a no-brainer. You set aside some of your hard-earned cash and let time (and interest) do the rest. In reality, you open up an account with an online trading brokerage, put your money into a vaguely named portfolio, and wonder, Where is my money really going? Which companies am I supporting? And what effect is my dollar having on the world?

Enter: impact investing. Contrary to popular belief, you don't have to sacrifice returns to make a difference with your dollars. Extensive research has actually shown that impact investing has been outperforming the broader market for the past 27 years. But despite the opportunity for higher returns, nearly two in five millennials don't understand these types of investments.

So if this is the first you're hearing about impact investing (or you consider yourself one of the two in five mentioned above), we've done the hard part for you. We asked the chief marketing officer of Swell, Teresa Orsolini, to explain what you need to know to multiply your money with your values in mind (and all you need is $50 to get started). Here's everything you should know about impact investing, straight from an expert.

MYDOMAINE: What is impact investing?
TERESA ORSOLINI:
Impact investing is investing in companies that are working toward positive progress in the world. It's basically investments that are made into companies with the intention of a measurable beneficial and social environmental impact alongside a financial return. It's investing for your heart and investing for your head.

MD: How should I go about choosing companies to invest in?
TO:
I think it's helpful to take a look at where your money is today. Do you know what companies you're supporting? Do you know what they're involved in? Do they align with your values? Can you name the top three holdings in your investments? Take a look at where you're investing today, and determine how comfortable are you with where your money is going. Ask yourself, where do I want to be investing as an individual? What do I value in the world?

MD: What types of companies can I put my dollars behind?
TO:
At Swell, we've built our portfolios around themes that align with the UN's sustainable development goals, which we think are the greatest challenges facing the world. Our portfolio themes are around clean water, zero waste, renewable energy, healthy living, and disease eradication. Identify a certain thematic area that matters to you, and start to find ways that you can invest and "vote with your dollar," so to speak, against those areas.

MD: What are the top three things I need to know about impact investing?
TO:
First and foremost, you don't have to sacrifice return if you want to invest in impact. When you look back at the longest socially responsible index, impact investing has outperformed the broader market over the past 27 years. If you take a look at our portfolios, you can see that the results speak for themselves.

It's also important to understand where your money is going and which companies you're supporting. At Swell, we look at where companies are deriving their revenue from to make sure it aligns directly with a sustainable development goal (like clean water infrastructure, treatment, purification, etc.). For us, it's not just how a company is conducting their business, but it's what their business is.

You also don't have to have a ton of money to get started. We believe that movements happen over time because of the collective efforts of citizens together uniting, so we have a minimum that's the lowest in the market right now—it's $50 to invest in Swell's portfolios. If you're a millennial, you may not have your emergency fund set up, you may be saving for a house, or you may be saving for a wedding, but you should be able to find $50 to start investing today. You can start small, but you should continue to invest over time to really build your financial future.

MD: After I invest, how do I know if my money is making an impact?
TO:
Swell tries to make it really simple. In the way that we present our portfolios, you have full transparency into the companies you're supporting and why a specific company was included in a portfolio. There's a lot of information available on the web and on social media about companies. It can be hard to parse through it all and digest it all, so we try to make it really simple and surface information that's succinct (and what I call "snackable") for all of the companies in our portfolios so you really understand what it is that they're building that is directly addressing a particular challenge facing the world today.

We also have something called a quarterly rebalance where every quarter we reassess and we look at how our companies are performing, both from the impact side and also the financial fundamentals. If a company's focus has changed or they no longer meet our strict criteria for whatever reason, then we will eliminate them. This continues to help us keep our portfolios strong and deliver on the promise that we made to our investors.

MD: What are some misconceptions people have about impact investing?
TO:
The biggest one is that you're going to sacrifice your returns—that this is a philanthropic effort. At Swell, we benchmark ourselves versus the broader indexes, like the Russell 3000 and the S&P 500. Right now, our green tech portfolio is at 41% since inception versus the broader market, which is at 20%, which is a great example of how investing in companies that are leading change in the world can work.

Plus, if you believe that over the next few decades clean water will continue to be a scarce resource and that the demand for clean water will go up, then the companies that are directly solving that issue (companies that are building products and services to deliver on that demand) will continue to grow. It's a real supply and demand setup here—it's not just about your heart, but it's also about investing in potential growth.

Up next: "I retired at age 30 with $1.25 million"—these three strategies were key.