By Ken Tsunoda, Deep Community Capital
Five years ago, my wife Elsa and I started exploring how we could use our retirement savings to make a positive impact.
We’d been talking with our sons about how we could do the most good as a family—with limited financial resources—in communities we care about. I was working at a nonprofit, and Elsa is a college professor. We’re comfortable, but we’re not wealthy enough to give away large sums of money.
We realized that while we couldn’t donate a lot, we had saved a meaningful amount in our retirement accounts. What if we could invest those savings in funds doing good work—then get our money back (hopefully with some interest) when we needed it in retirement?
That’s what sparked our journey into impact investing. We made it a family project, including our sons KC and Owen—both college students at the time—in the learning process.
But getting started wasn’t easy.
The Limits of Traditional Retirement Plans
We were introduced to an impact-oriented financial planner that did a great job helping us with our retirement plan.
Their approach for making an impact was ESG funds, which are mutual funds investing in stocks of large publicly-traded corporations with better environmental, social, and governance records than their peers. So that’s where we started.
We took a closer look at the companies we’d invested in through these ESG funds. We found that the biggest investments in the portfolios of these ESG funds were big tech corporations like Tesla, Microsoft, and Alphabet. We just didn’t feel inspired by the impact from moving our money into these large corporations.
We learned that for employer-sponsored retirement plans like 401ks and 403bs, ESG funds like this one were the only socially responsible solution available. But we wanted to dig deeper and see if we could do something more impactful.
Unlocking Deeper Impact with a Self-Directed IRA
In 2020, I did a fellowship at an amazing program called the Just Economy Institute. I got to work with impact investing experts and a cohort of financial activists, who were perfect to help us figure it out.
I learned that it’s possible to set up a Self-Directed IRA with more flexibility to choose what you invest in, including options with more direct impact than ESG funds.
How We Set Up Our Self-Directed IRA
We set up a Self-Directed IRA and funded it with 5% of our retirement assets. Setting up a Self-Directed IRA isn’t complicated, but it does require a bit more work than a standard IRA. Here’s what we learned:
- Choose a custodian: You’ll need to open your SD-IRA with a custodian that allows alternative investments. We looked at several options and chose Advanta IRA because it offered a great mix of flexibility, affordability, and customer service.
- Costs: Every custodian has a different fee structure. In our case, it’s about 0.5% annually of invested assets, plus a $95 fee per investment.
- Rollovers: We were able to roll over funds from a traditional IRA. It’s also possible to rollover 401(k) or 403(b) funds after leaving an employer, or at age 59.5, even if you’re still working.
Important: You don’t have to use a Self-Directed IRA to do impact investing. If you have non-retirement assets, those can be invested directly into community funds too. But for many of us, our retirement savings are our largest pool of capital—and they’re just sitting there, waiting to be put to better use.
Investing for Deep Community Impact from a Self-Directed IRA
I asked the experts I’d met from the JEI community to help us find impact funds that are well-managed, have deeper impact than ESG funds, and accept the smaller investments we could make. We were introduced to several funds that do lending to entrepreneurs of color, social enterprises, renewable energy projects, and CDFIs.
We wound up investing in 7 debt funds that committed to return our capital after a fixed period, mostly between 1 and 3 years, plus annual interest payments. We found several that accept investments from non-accredited investors. We were responsible for doing our own due diligence, so we only invested in funds managed by someone personally recommended to us.
5 years later, I can report that every fund we invested in has repaid our capital when promised. We’ve started reinvesting the capital for more even impact. Through the reports we’ve received, we’re confident that there’s been a meaningful impact from our investments.
Making It a Social Activity
When we started sharing our journey with friends, their response was often:
“I had no idea you could do that. Can you help us get started?”
So last year, I organized two impact investing circles with friends and colleagues. We meet regularly, share what we’re learning, and explore opportunities together.
We’ve made impact investing a social activity—and honestly, it’s been a lot of fun.
Launching Deep Community Capital
Now, I’m working with a small group of friends to launch a new social enterprise: Deep Community Capital.
Our mission is simple:
To enable all of us to align our investments with our values, regardless of how wealthy we are.
We want to take what we’ve learned and share it with others who are just getting started on their impact journey.
You can visit us at www.deepcommunitycapital.com to learn more about our upcoming launch. Click “Join Our Community” to sign up for updates and resources as we prepare to go live later this year.
#ImpactInvesting #FinancialInclusion #CommunityCapital #DeepCommunityCapital #InvestWithPurpose #ImpactInvestingforEveryone
