There’s a growing trend among investors – both individuals and institutions – to use their money to effect positive change in the world. For these investors, gone are the days of simply calculating which funds will generate the greatest returns. Instead, impact investors choose where to put their assets based upon their desire to improve the world in some way, while earning money in the process.
Could impact investing be right for you? Well, if you consider yourself a bit of an activist for one or more societal or environmental causes, it could be. Let’s examine the pros and cons of this investment trend.
The Pros
If you find yourself skeptical about an investment practice that isn’t solely about maximizing returns, you’re not alone. Impact investing requires a different type of money mindset. For those who choose to invest their assets in this way, however, there are several benefits.
You Can Do Good Even if You’re Busy
We live in a time where busyness is almost a religion. Some people think they have to pack their schedules and appear ultra-busy in order to be seen as productive or successful. Many people want to do good but lack the time to volunteer at a charity or sit on a non-profit board. Impact investing allows you to do good – and feel good – without adding anything else to your chaotic schedule. You may not have time for that mission trip to bring clean drinking water to children in Tanzania, but your money can facilitate this important work.
You Can Improve Your Health
There’s something inherently fulfilling about supporting charitable causes in general, but more and more research is showing that doing good is actually good for your physical and mental health. Using your money to support good causes has been shown to decrease stress and depression and even contribute to a longer life.
You Can Positively Impact the World
There are thousands of worthy causes to invest in, and the world is your oyster when it comes to impact investing. You can personally affect positive change on a scale that makes sense for you, and you can earn positive financial returns in the process. If you want to facilitate good works that also positively impact your bottom line, impact investing is the tool to do so.
The Cons
There’s always a certain amount of risk involved in investing, but perhaps more so in impact investing. Below are a few reasons to take pause before putting your money where your heart is.
Returns Vary Greatly
As mentioned above, impact investing isn’t about maximizing investment returns. Can you make a great deal of money this way? Sure. Can you also lose money or see minimal returns? Yes, of course. Depending on the organization you’re investing in, returns can vary greatly and may not be stable over time.
You May Be Sacrificing Earnings for Impact
When you think about what you need from your money over time – increased net worth, positive gains, stable income for retirement – you should be aware that impact investing means you may have to sacrifice some of this in the name of impact. So, you’ll want to make sure you feel strongly enough about a cause or organization before risking your hard-earned money in this way.
You Could Miss Out on Other Opportunities
When you make the decision to invest your money in an impactful way, it means leaving other opportunities on the table. It’s very likely you’ll have to say no to lucrative investment options if you choose to stay the course with impact investing instead. Choices like this could make or break your financial health and require serious thought beforehand.
As you consider how to invest your hard-earned dollars, it’s important to understand that impact investing is a rewarding experience that carries with it both pros and cons. If you’re interested in pursuing it, it’s a good idea to start small in order to see if it’s truly the right choice for you. Your generous investment in a cause that means something to you could benefit your life and your health in multiple ways, but you may need to make financial sacrifices that hurt your own bottom line in the process.
As with much in life, whether or not to engage in impact investing is a very personal decision. As you consider whether to diversify your portfolio in this way, you may benefit from starting a conversation with a trusted financial advisor to help you make decisions that support both your financial and philanthropic goals.
