Regardless of your other financial goals, saving for retirement is a must for everyone, and that brings up an uncomfortable truth for those of us who care about not contributing to the climate crisis or the human inequality crisis with our money: to retire securely, you must invest, and investing responsibly can be a challenge.

The good news is that investing responsibly is becoming simpler than it was only recently. But as I write about in my new book, there’s more to funding your retirement ethically than just what stocks you invest in. Fortunately, funding your retirement in a way that minimizes harm to the planet and other people is straightforward if you know what to look for.

Read: Want to retire early? Tanja Hester went from freewheeling spender to financial independence and says it’s simpler than you think

Responsible banking

Ample research shows that millennials, and Generation Z, and younger members of Generation X prioritize investments that are socially and environmentally responsible. And responsible investing has become an oft-used buzzword in the personal finance sphere. But many of us are ignoring the much more direct way our money does harm: through our bank. If you use a big bank, there’s a near-certain chance that the money sitting in your savings account is being used to fund new fossil fuel projects and other harmful things like conflict mineral operations, funding new factories that employ forced labor, and the list goes on. We’d like to think that the money we have deposited goes to fund mortgages for first-time home buyers and loans to small-business owners of color, but much of that money instead goes toward exactly the types of projects that many of us try to avoid with our invested dollars.

The solution? Switch banks. It’s a bit of a process to switch to a credit union, a community bank, or a Black-owned bank, but it’s a one-time process and then you’re done. You can find a credit union you qualify to join at mycreditunion.gov, or go a step farther and find a credit union specifically focused on uplifting low-income people and communities at inclusiv.org.

Read: Saving for early retirement? Don’t feel guilty about spending on these things

Responsible investing

The first and (often only) way most people invest is through a workplace retirement account, and as an employee, you’re limited by the investment options chosen by your plan administrator. Though ESG (environmental, social and governance) funds are not perfect because there will continue to be abuse of the term until it has an agreed-upon and enforceable definition, in general ESG funds are still better in terms of social and environmental responsibility than non-ESG funds. So get loud and demand that your plan administrator include multiple ESG options in your workplace retirement account. Encourage your co-workers to join you in pressuring your employer for more responsible options.

If you’re investing on your own, either because you’re self-employed and are using a vehicle like a SEP IRA or a solo 401(k), or because you want to invest above and beyond what you can invest through your workplace plan, you have many more options. ESG funds can be a good place to start, but do your homework. Find out what’s actually in a given ESG fund to ensure there are no fossil fuel companies hiding out there, or gun makers, fast food companies or manufacturers with especially flagrant bad labor practices. And of course look closely at fees, as you shouldn’t have to trade your future financial security for responsibility.

Read: The Roth strategy we wish we’d built for early retirement

A growing option that more investors consider is called direct indexing. While not created for the purpose of responsible investing, it’s a fantastic tool for the job because it allows you to buy a whole index, as you would with any index fund, but then subtract the stocks you don’t wish to include. So you could, for example, invest in the S&P 500
SPX,
-0.01%
,
minus fossil fuels, guns, nonelectric auto makers, big tech that don’t fight misinformation.

Ethical rental investing

Investing in rental real estate — buying a property specifically to rent it out — is becoming more popular, and if you believe some of the videos on TikTok, it’s a sure thing. While there’s risk with rental real estate as with any investment, it can be a solid way to fund your retirement if you approach it right. Of course, approaching it with an eye toward profit does not guarantee that you’re approaching it ethically.

Proponents of rental real-estate investing tend to use a lot of euphemisms and insider terms that mask the fact of what you’re actually doing: providing a home for someone. The focus is often on maximizing your investment by finding a property in a location where rents exceed purchase prices, and that happens most often in low-income communities where people can’t afford to buy a home, pushing rents up and prices down. Because these properties may exist in a different city or state from where the investor lives, this approach often requires hiring a property manager to select tenants, collect rent, and to intervene if anything goes wrong. Unfortunately, a huge number of property managers of properties for low-income people have a history of discriminatory practices such as not renting to people of color, harassing tenants, conducting unscrupulous eviction processes, and more.

Read: How this 38-year-old emerged from ‘deep poverty’ to achieve FIRE in his 30s

So how do you avoid all of this?

First, you can decide to purchase a property only if you can manage it yourself.

Second, if you can’t manage it, or investing near where you live isn’t a feasible option, do your best to avoid low-income areas that have been hard-hit by the eviction crisis, to avoid worsening it. Before you buy your first property, resolve not to raise the rent each year just because you can, but instead to work hard to keep tenants as long as you can.

Finally, if you must hire a property manager, be hands-on with the vetting process. Investigate any potential candidates for harassment and discrimination claims. Ask to speak to some of their tenants as references. Don’t assume they approach the work ethically just because they say so.

Ethical location selection

Though choosing where you live is not funding your retirement, it’s common for those thinking ahead to plan to move to a new place where cost of living is less than where you live now, which stretches your saved and invested money, acting as a kind of funding source. And where you choose to live comes with plenty of its own pitfalls, not least of which is the fact that the most popular retirement locales tend to be those at highest risk from global warming.

Read: This heat wave is a retirement issue — how to build climate change into your retirement planning

In addition to climate considerations, if you care about not exploiting people who are worse off than you, remove from your list any locations in low-income countries, such as popular expat retirement locations in Central and South America. By moving to a low-income country, you benefit from infrastructure that your tax dollars did not help to fund, often without returning anything substantial to the community, particularly in places where expat communities tend to be walled off from the locals. If you wish to retire abroad, consider countries of comparable income level to the U.S., or simply find a place to retire within America where you can stretch your dollars farther without displacing anyone or benefiting from services that you didn’t help fund.

Tanja Hester is a contributor for MarketWatch. She is the author of Wallet Activism: How to Use Every Dollar You Spend, Earn, and Save as a Force for Change and Work Optional: Retire Early the Non-Penny-Pinching Way, host of the Wallet Activism podcast and creator of the Our Next Life blog.

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