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November 02, 2004
How to Open Your Own Socially Responsible Investment Retirement Portfolio
by William Baue
In this real-life profile, an SRI-oriented financial planner advises a 34 year-old woman how to
transfer her non-SRI retirement account into a portfolio of SRI mutual funds.
SocialFunds.com --
When considering retirement, most people prioritize financial security, while many also prioritize
the promotion of a socially and environmentally sustainable future in which to retire. With its
focus on the long term, both in regards to financial returns and the social and
environmental consequences of corporate behavior, socially responsible investing (SRI) can go
hand-in-hand with retirement planning. While many retirement plans have been adding SRI options to
their menus, there are still many plans with few or no such options.
Such is the case for Amy Rankin, a 34 year-old
woman of Durham, North Carolina who wrote SocialFunds.com seeking advice.
"I don't have
much to invest--maybe $8,000--which I shifted into a money market retirement account earning one
and a half-percent interest out of my 403(b) account through my previous employer, the North
Carolina State Employees Credit Union [NCSECU], because Fidelity does not have mutual fund options that meet my
standards," Ms. Rankin told SocialFunds.com. "I want to feel good about where I invest it, so I am
looking for a socially responsible retirement fund."
SocialFunds.com does not provide
financial advice, so we talked with Charles Turner of Littleton, Colorado-based Turner Financial Planning, a fee-only
financial planner who works with clients on an hourly, as-needed basis. Mr. Turner, who is also a
member of the SRI-oriented First Affirmative Financial Network (FAFN), agreed to develop an SRI retirement portfolio
for a SocialFunds.com profile according to Ms. Rankin’s particular situation.
Mr.
Turner first asked Ms. Rankin to fill out a risk tolerance questionnaire. On a scale from 1 (not
important) to 9 (very important), Ms. Rankin rated capital preservation and inflation protection as
very important (8), low volatility and growth as moderately important (7 and 6, respectively), and
current cash flow as not important (1). She is willing to take a moderate amount of risk (5) to
achieve a higher return.
Next, Mr. Turner addressed social screening factors with Ms.
Rankin, who identifies herself as a teacher, volunteer at a food co-op, house owner, and partnered
lesbian who is active in church. Ms. Rankin's highest priorities include companies with gay,
bisexual, lesbian, and transgender (GBLT) partner benefits, human and worker rights, and
environmental responsibility. She also supports broad-based social screening on other issues, such
as sustainable development and diversity. As for exclusionary screens, she wishes to avoid animal
testing, weapons production, and child labor, and she would specifically prefer to avoid supporting
"companies like Clear Channel Communications [ticker: CCU], which dominate media voices."
"I know I want 100 percent socially conscious funds, not just part of my investments," Ms.
Rankin added.
Mr. Turner explained that researching individual companies is very
expensive and thus the most affordable way for investors with less than $100,000 to access such
research is through mutual funds, which spread the research cost across all their investors.
"You should also know that sometimes socially responsible mutual funds hold shares of companies
that don't meet their screens so that they can practice shareholder advocacy and try to move that
company in the right direction," Mr. Turner told Ms. Rankin. "Also, some mutual funds hold shares
in companies that are the least offensive in their industry (oil companies, for example) because
it's good to have that asset diversification and it's good to reward companies that are best in
their industry."
"So no one mutual fund will have a 'perfect' collection of investments
because if you look deep enough into any one company, you are likely to find something of concern,"
Mr. Turner added.
Before listing his specific recommendations, Mr. Turner addressed some
important details, such as contacting her retirement plan provider to ascertain if she will be
assessed penalties, fees, or charges of any kind for transferring to another custodian. If so, it
is wise to ask for an explanation of when they are reduced and when they disappear completely.
Annuities often have sales charges that typically decrease by about one percent per year, so it
makes sense to wait until those charges approach zero, according to Mr. Turner.
Assuming
no penalty for transferring, Mr. Turner then recommended that Ms. Rankin open a rollover individual
retirement account (IRA) at the discount broker of her choice. Transferring funds via a check made
out to her would be "unpleasant," so Mr. Turner advised her to ask for a "trustee to trustee"
transfer of her retirement funds directly from her former account to her new discount broker
account.
With these technicalities out of the way, Mr. Turner made his recommendations,
allocating about 75 percent of her portfolio to stocks and 25 percent to bonds as is appropriate
for her risk tolerance. He advised her to pursue an asset allocation of 35 percent of her
retirement portfolio in large capitalization companies through the Domini Social Equity Fund (DSEFX) and 15
percent in small cap through the Citizens Small Cap Core Growth Fund (CSCSX). He also recommended
she allocate 25 percent of her portfolio to global companies through the Portfolio 21 Fund (PORTX). As
for bonds, he tapped the Domini Social Bond Fund (DSBFX).
"The screens
meet my needs for the most part, though I am somewhat uncomfortable with investing in a few of the
larger companies in the mutual funds--Coca-Cola [KO], for example," said Ms. Rankin.
"I also just want to know more about each and every company--I could drive myself crazy!--yet I
know I have to trust the screening processes."
Mr. Turner reassured Ms. Rankin on the
portfolio's match with her risk tolerance.
"This should result in a portfolio that allows
you to 'sleep at night'--in other words, it has enough risk to generate returns but not so much
risk that you will be uncomfortable when the market temporarily loses value," Mr. Turner told Ms.
Rankin.
"Note that these recommendations to do not address the issue of whether or not you
have enough money to retire," Mr. Turner added, as Ms. Rankin had not considered how much money she
will need to retire and did not provide a desired annual rate of return. "I recommend you consult
a financial planner to help you develop a retirement plan."
©
SRI World Group, Inc. All Rights Reserved.
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