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Impact investing can help you earn more money while putting money into causes you care about. Impact investing helps businesses offering social, societal, and environmental benefits thrive.
These companies’ activities might include education, energy, water, healthcare, and more. Impact investing spawns across many businesses and industries, but you should know the pros and cons before putting your hard-earned money to work. This article will discuss the pros and cons of impact investing.
What Exactly Is Impact Investment?
Impact investing is the practice of investing in businesses to create a positive social and environmental impact that can give you a financial return. Investors can invest in sustainable stocks, cryptocurrency, mutual funds, and more, as long as these companies focus on sustainable practices, such as green technology or services that help the public.
Younger investors are more likely to impact investment, and the market is expected to continue growing exponentially. As a result, businesses must spend money on their environmental and social initiatives to attract savvy investors.
Impact investing also involves knowing what not to invest in. For example, impact investing includes avoiding oil, alcohol, and tobacco investments.
While one of the main concerns of impact investing is sustainability, investors are also looking for fair practices in human capital.
Companies should treat their employees well, pay fair wages, and offer benefits. Impact investing can help savvy investors earn more money while investing in causes they care about.
The best thing impact investors can do is consult with an investment advisor who can help you screen funds and ensure you can increase your ROI.
What Are the Pros and Cons of Impact Investing?
Impacting investing is similar to regular investing. For example, you’ll still have to use professional tax software to track your earnings, but you’ll be able to earn money on the investments that share your values. Impact investing requires an intelligent investment strategy, but it has its benefits and drawbacks just like any other investment.
Pros of Impact Investing
1. Investing in Causes
The most significant benefit of impact investing is investing in companies that share your values. For example, you can now earn money by investing in companies that treat their employees well and have sustainable practices.
You can also invest directly in sustainable companies that are helping to save the planet, such as automakers who are developing new electric vehicles.
Combining your values with your portfolio allows you to have a bigger impact on the planet and its people than becoming sustainable in your personal life only.
2. Calling the Shots
Using your money to make a change puts you in charge of the change. For example, if you’re anti-fossil fuels and want to keep your money away from big oil, you can invest in electric vehicle companies.
Not only is that fewer funds for oil companies, but you can shift your investment to the companies who directly compete with them.
With impact investments, you control where your money goes. The money you invest goes to companies that operate by your standards. You’re the investor who gets to reward companies for their values, including safe communities, clean air, and better health.
Ultimately, you’re putting your money into the companies that can help you save the planet and its people.
Cons of Impact Investing
If you’re investing without being smart, you may sacrifice your portfolio’s performance. It’s essential to have strong values and invest in the companies you care about; you should only do so when you can get a return on your investment. You shouldn’t have to lose money as an impact investor.
Unfortunately, many investors mistake excluding companies who might be ethical, but they might not be sustainable enough.
For example, many investors might avoid automakers who make internal combustion engine vehicles even though those automakers are also investing in developing hybrids and electric cars.
Don’t let your belief system completely rule your portfolio. Instead, continuously diversify your portfolio and research the stocks and companies within your portfolio.
You should also work with an investment advisor to ensure your decisions can help you earn money.
2. Lying Companies
Some companies may not be as sustainable as they claim to be. Of course, marketing plays a significant role in investor decisions and can make you believe a company is more sustainable than its practices prove.
It’s easy to get confused by a company with good marketing, even if its true values fall flat.
You can avoid most lying companies by doing extensive research and trusting your judgment.
If you find out a business hasn’t been entirely truthful about its ESG practices, you can always sell the stock.
3. Difficult Decisions
As an impact investor, you’ll have many difficult decisions to make. You’ll need to choose between profit and ethics in some cases. While many of your values will align with the stocks you invest in, others might be as profitable as the less sustainable investment opportunities.
Sometimes, you may compromise your values to earn more money and keep your investment portfolio diversified.
Should You Be an Impact Investor?
As an impact investor, you’ll have the opportunity to put money into companies and funds that create products and services to help the environment and your communities. Impact investors can significantly impact the environment by sticking to their beliefs and being willing to return a lower investment to be a part of beneficial change.
Being an impact investor is a unique experience. As more customers call for better ESG initiatives, more companies will focus on sustainability.
In just a few more years, you’ll have more options for investing in companies that can help save the planet.
Impact investing means making the world a better place, but it isn’t for everyone. Working with a financial advisor can help you determine whether impact investing is a good place to put your money or if there are other types of investments that can help you become more financially independent.