US retirement savings amounted to $25 trillion in 2015, totaling 36% of the nation’s household financial assets. Basic investing wisdom holds that as an investor approaches retirement, the overall riskiness of her portfolio should decrease, so as not to risk loosing the nest egg, just as it becomes needed. Therefore, the allocation of assets in a retirement portfolios shifts from higher-risk equities to lower-risk bonds over time. As the risk appetite is lowered, the expected rate of return must also decrease. Aging investors’ chief aim is keep their nest egg safe. Earning a modest return in the process is simply icing on the cake.
Salaries rise with seniority and investments compound over time. Older people are more disposed to donate some this disposable income to political or social causes. Thus their demographic dominates charitable giving. For example, the median age of the top campaign donors who contributed to federal candidates and committees in the 2014 election cycle was 66. Older people also tend to better informed and hold stronger opinions about local issues. They are community linchpins, who support civic institutions through their charitable donations.
What if their contributions to local organizations could be also serve not only as a safe investment vehicle for preserving their wealth, but also providing a modest return? Would they not be willing to donate more money to local causes, where they can better see the fruits of their generosity first hand, instead of sending it off to Wall Street?
There is a strong case for encouraging the older and wealthier residents of our cities to invest in local charities, rather than simply donating to them. Charity is laudable, but its impact is limited by the amount disposable cash available amongst philanthropists. They are also one-time-only cash injections into these non-profit organizations. The same holds true of the very wealthiest who tend to give through their foundations. If, instead, these local benefactors invested in a fund, say one that made loans to local charities on a revolving basis at a below-market rate of interest, their contribution would be perpetual and the interest earned could cover administration of the fund, as well as netting a modest return for the investor. These types of investments are not necessarily risky. There are functions served by charitable organizations that are generally low risk financially speaking, such as developing affordable housing.
Investments that yield positive social and environmental benefits, in addition to a modest return on equity, are called impact investments. While there is a broad range globally of what can classified impact investments – from screening out arms and tobacco companies held by a mutual fund, to providing seed money for projects in developing nations – it is initiatives at the local level which could be particularly engaging for senior citizens. In Seattle, there are several examples of social impact funds are being used to build affordable housing. For example, Bellweather Housing launched the Seattle Futures Fund to convert a 50-unit property in Seattle’s Queen Anne neighborhood using the low-income housing tax credit scheme. The funding gap was filled by a $1.8 million loan, crowd sourced from local impact investors. Since then, others similar funds have emerged to secure sites for affordable housing by the likes of Enterprise Community Partners and Forterra.
Engaging potential impact investors relies on leveraging existing networks. As awareness of impact investment grows locally, and as investors are educated about this alternative to conventional retirement savings vehicles, the pool of funding available to qualified local charities should continue to grow. In the current political climate, where governmental funding seem more jeopardized than ever, increased private investment in local service providers, who can deliver social impacts where local governments either cannot or unwilling, may be arriving at just the right time.
- Total retirement assets near $25 trillion mark. (2017). Benefitspro.com. Retrieved 28 January 2017, from http://www.benefitspro.com/2015/06/30/total-retirement-assets-near-25-trillion-mark
- Gelernt, A. & posts, A. (2015). Donor demographics: old white guys edition, part II – OpenSecrets Blog. OpenSecrets Blog. Retrieved 28 January 2017, from https://www.opensecrets.org/news/2015/06/donor-demographics-old-white-guys-edition-part-ii/