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How Does Impact Investing Work?
Make money while also making a difference

Investing your money can be a great way to grow your net worth, but professional investors or funds can purchase pieces of profitable-yet-dubious industries on your behalf. If you want to make sure your investments are not just working towards earning you more money but improving the world we live in, impact investing might be the way to go.

What is it?

According to James Chen of Investopedia, the most basic definition of impact investing is “investing that aims to generate specific beneficial social or environmental effects in addition to financial gain.” It’s similar to the concept of socially responsible investing, but instead of just putting your money in industries to avoid harming the environment and others, impact investing looks to support organizations making positive change. Usual recipients of impact investments are clean technology companies or community support organizations.

Earning money

It’s all well and good to want what’s best for the world, but the whole reason you’re investing is to make money. Depending on how you participate in impact investing, it is certainly possible to see a return on what you put in. Leslie Kramer of Investopedia reported on a study that followed 208 impact investors with the Global Impact Investing Network (GIIN) and their $22.1 billion in committed cash. In 2016, 91 percent of the investors reported that the returns were meeting or exceeding their estimates, and 66 percent said that the returns were on par with traditional market-rate returns.

Another sign that impact investing might be a profitable option in your future is that major investment companies are joining in the practice. You can choose dedicated impact investing firms, but several traditional fund management companies are also offering social impact investing funds. Big names in the nonprofit world, like the Rockefeller Foundation and Case Foundation, also rely on impact investing to grow holdings in a positive way.

Getting involved

If you think impact investing sounds like a good idea, there are many ways that you can get involved. You can choose to invest in certain companies individually, which takes a lot of time and effort, or find a fund you can trust to handle your money responsibly. Susan Shain of Lifehacker reports that GIIN’s ImpactBase is a great place to start. According to its site, the tool is an easy-to-use database that compiles impact investment funds and similar products for investors. Each profile gives you details about a fund’s investment asset classes, impact objectives, minimum investment size, and other key factors to help you make your decision.

To get started in impact investing without handing over a ton of money, you can also consider using Swell Investing. For just $50, you can start a portfolio with them to invest in companies that meet at least one of the 17 United Nations Sustainable Development Goals, like gender equality or responsible consumption and production. Shain writes that the platform lets you choose what sectors your money goes towards, with its green tech portfolio doing the best with 30 percent growth in 2017.

Impact investing is currently popular among wealthy individuals and organizations, but there are several ways for others to get involved, too. Make sure to talk with a professional advisor before making any big changes in your investing strategy.

* Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investment involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including loss of priciple.

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Disclaimer - All content contained in this newsletter is for informational purposes only and should not be relied upon to make any financial, accounting, tax, legal or other related decisions. Each person must consider his or her objectives, risk tolerances and level of comfort when making financial decisions and should consult a competent professional advisor prior to making any such decisions. Any opinions expressed through the content in this newsletter are the opinions of the particular author only.

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