The views and opinions expressed in this article are those of the author and do not necessarily reflect the official opinions, policies, or positions of StreetShares or any of its affiliates.
Wall Street gets a bad rap in the media. Stories of greed and corruption seem to fight their way to the top of the headlines every day. However, there is a new valiant knight on Wall Street: enter “Impact Investing”. It’s not just another buzzwordy term either, impact investing has been around for over ten years, although it’s finally starting to gain traction with individual investors for reasons that go above and beyond potential profits.
Socially Responsible Investing
Before we dive into impact investing, let’s get to know its close older cousin, socially responsible investing.
Socially responsible investing is when an investor excludes specific industries or companies from their portfolio of investments to better align with their personal values. Obviously the strategies will vary from person to person, but these impact-conscious investors tend to exclude industries like tobacco, guns, Big Oil, and alcohol. Socially responsible investing doesn’t only target individual industries or companies either. In the mid-eighties, the world watched as divestment in South Africa became a trend as a reaction to the Apartheid.
Socially responsible investing gets the reputation of deeming things “good and bad”. But really, socially responsible investors aren’t trying to be killjoys- they’re simply screening their investments to better align with their own values and beliefs.
What is Impact Investing?
Socially responsible investing can often be exclusionary, screening out the investments that don’t align with an investor’s point of view. In contrast, impact investing seeks to screen in investments, with the goal of adding impactful investments to one’s portfolio. The investments that are chosen have a twofold impact. They must address some type of social, environmental, or economic issue while also being able to produce a measurable return or impact in their industry. While impact investors seek to support causes they believe in, these investments are not charity- impact investing specifically has the goal of generating a targeted return to its investors.
See also: How Would You Invest $10,000?
According to GIIN, the Global Impact Investing Network, an estimated $139.9 billion was invested in impact investment strategies in 2017, ten times as much since 2014. Although that seems like some serious cash, impact investing is still in its infancy with room to grow.
Well-known foundations such as the Bill and Melinda Gates Foundation or The Rockefeller Foundation have been at the forefront of impact investing for years. Other well-known names like Bain Capital, BlackRock, and Goldman Sachs are also playing in the impact investing arena, providing both credibility and capital to impact investing. These major players are attacking major environmental and social issues like access to clean water, renewable energy, education, and solving health and disease issues, all while turning a profit.
Individual investors can let their dollars speak for themselves with impact investing too. For example, an individual who is passionate about healthcare might research opportunities to find investment portfolios that are heavily weighted with companies that are working to implement sustainable clean water solutions in third-world countries, with an end goal of limiting the spread of waterborne diseases.
How Can You Start Impact Investing Today?
Until recently, impact investing was a practice that was reserved only for the ultra-wealthy. Large corporations and high-net-worth philanthropist investors were the major players in this do-good style of investing.
However, impact investing is evolving from a concept to a tangible option for the average investor. Major investment firms are taking notice that the average investor is looking for ways to make social and economic impacts in their own lives. In combination with the rise of micro-investing and robo-investing platforms, impact investing is becoming a reality for the masses. There are many ways for even newbie investors to get started with impact investing, with the smallest commitments starting at just the price of a cup of coffee.
Investors looking to dip their toe into the world of impact investing can get started for as little at $5 with robo-investing apps that target millennial investors who are interested in making impact investments in portfolios of various stocks and ETFs. Another impact investment vehicle that offers low minimum investment costs but more standardized and sometimes conservative returns is an impact investment bond or note. Finally, mutual funds that market themselves as impact investments are another easy way for individual investors to start researching impact investments that interest them and that they can potentially profit from. A standard buy-in for a mutual fund is often $500 to $1,000.
Ultimately impact investing is giving investors a choice and a chance to align their investments with their passions and values. Society is already making choices every day to improve many environmental and social aspect of our lives; supporting small businesses, veterans’ issues, education, limiting plastic waste, or partaking in water conservation, just to name a few. With impact investing, an individual can push their dollar one step further by investing in passions and potentially receiving a return on their investment.
A Final Note
Just because impact investing is giving us some serious feel good vibes, it’s still worth noting that investors need to take the same serious approach with impact investing as they would with their traditional investments. Research! Read the fine print! Smart impact investors still know to understand the terms of their investment, paying special attention to returns and possible investment fees.
This communication is provided for informational purposes only. It is not intended to be an advertisement, a solicitation, or constitute professional advice, including legal, financial, or tax advice, nor is StreetShares providing advice on any particular situation. StreetShares is not a bank. Veteran Business Bonds are not FDIC insured, not bank guaranteed, and not a bank deposit product or account. May lose value. This communication is not an offer to sell nor a solicitation of an offer to buy securities. See Offering Statement and related SEC Filing Documents.