Entrust Learning Center > Keyword: investing > Is Green Investing an Oxymoron?

Is Green Investing an Oxymoron?

Many investors wonder if it's really possible to get good returns on their investments, while also keeping the environment in mind.

By: James A. Jones, Business Development Manager with Entrust Administration, Inc.

IRA & 401(k) Insights

Is it possible to invest in a company that can make a good profit (and therefore a good investment return) and do so without total disregard for the environment? In order to make a good profit, isn’t it necessary for a company to look the other way when cutting down trees, sapping our natural resources, and polluting the air with delivery trucks to ship finished goods to customers? While boardrooms and annual investor meetings have become a fashionable place to throw around the term “green investing,” is it really just an oxymoron?

Green investing can be defined as putting money into a company or companies that actively promote environmental responsibility. The old ways of the old days led to deforestation, drought, global warming, pollution and more. Nowadays many businesses are looking to operate in a eco-friendly way, or even better, solve some of the problems that were caused in the past when very few people were concerned about the environmental impact of their actions.

Major corporations are realizing that cutting costs for environmental reasons is not only good for public relations; such efforts can raise revenue as well. Big automakers are finding that hybrid cars can substantially grow their market share. Consumer products companies are offering new green products that grab competitor market share overnight. The advent of “socially responsible mutual funds” has made it easy to become a green investor. But what about investing directly into new companies that are actually creating sustainable solutions to the world’s environmental issues, with wind turbines, clean coal, solar power, befouls, and geothermal technology?

The answer lies with self-directed IRAs. With a self-directed IRA, you can invest directly into a privately owned “green company” while in its early stages. Since the inception of the IRA in 1975, self-directed IRAs have been little known and often misunderstood. In fact, they only represent about one percent of the retirement market. While there is no published list on what the IRS will allow in a self-directed IRA, IRC code 4975 states that there are only two assets that are not allowed: life insurance and collectibles.

Open a self-directed IRA with a simple application, and you can then fund your account with an annual contribution, an existing IRA transfer, or a rollover. Self-directed IRAs include Traditional, Roth, SEPs and SIMPLE IRAs, and are subject to all the same rules and regulations as regular IRAs. Once you have identified an investment opportunity in a “green company,” you must check the subscription agreement to make sure their offering can be held in an IRA. Then, you can simply direct Entrust to proceed with the investment on your behalf, and the transaction is complete. It turns out green investing isn’t just a trendy concept after all, it’s yet another option for self-directed IRA investors.

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