In this article, I will dive into the concept of impact investing and how you can benefit the planet as well as your portfolio. Impact investing is the idea of investing with the goal of financial return as well as positive social/global impact. Further, this trend has significantly picked up support over the past few years as many high-net-worth investors have purchased, or expressed interest, in owning assets to make a social impact. Additionally, it seems that retirees have decided to consider impact investing as a great option because it offers an outlet for profit as well as the hope of leaving the world better than they found it. While it used to be difficult for average individuals to get involved in impact investing ventures, it appears that making an impact is beginning to become more accessible to all investors. As such, here are a few notes to consider if you are interested in pursuing impact investing — or any type of socially responsible investing venture:
Making an Impact Takes Deep Thinking:
Since the goal of impact investing is twofold — making a profit while also helping to improve society/the planet— it is not simple to make investment decisions. This is particularly true when compared to purchasing stocks from exchange traded funds (ETFs) or even a generally beneficial market sector like healthcare. Ultimately, your investment decisions with this mindset revolve around your ability to match your core values to your investments. As such, you would likely greatly benefit from becoming more conscious of what your true values are. Generally, this process is based more on emotional decisions than traditional investing is.
Opportunities Are Not Yet Plentiful:
As mentioned above, impact investing is still in the “early adopter stage” since it is now starting to pick up steam with many wealthy philanthropists. As result, there is not as many available resources for independent research. Fortunately, however, there is hope as multiple “big players” are beginning to release impact investing opportunities that are accessible to all. For instance, BlackRock, the world’s largest asset-management firm, has decided to launch a portfolio focused on impact investing called BlackRock Impact U.S. Equity Fund Investor A Shares Fund. Although this is just a single example, perhaps it foreshadows the type of opportunities that will continue to pop up in the (not so distant) future.
Watch Out for Fees:
Similar to other “global friendly” products and services, fees for socially responsible funds tend to be higher than comparable funds that do not specifically take social impact into account. For example, the Vanguard FTSE Social Index Fund Investor Shares’ current expense ratio is 0.20%, while the Vanguard Investor Shares 500 Index has an expense ratio of 0.04%. That said, for many, the relative fee increase is worth it for the social impact that their investment will be making. In the end, can a price for the welfare of the planet and its people really be set?
Like any other type of investment, it is important to remember that impact investing does come with risk. Alternatively, keep in mind that your money could also be making a real difference for others, so maybe taking on risk is worth it? Only you know the answer to that question, and as always, I encourage you to be responsible with your money and investments. Some independent due diligence can go a long way!