Impact Investing Leads the New Frontiers of Investing
Investors who want to make a real difference in people’s lives are diving into a new type of investing: impact investing. You may have heard of ESG or socially responsible investing. Well, impact investing takes it one step further.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
The events of the last year will not soon be forgotten: COVID-19, civil unrest and a very controversial presidential election all marked the past 12 months. Many people have had the time to take a step back to re-evaluate what truly matters to them. In reconnecting with their values, they may have found that they want to be investing to support a better future for our world.
Impact investing is one way individuals are becoming more purposeful when choosing where their money goes. It’s no longer just about earning a return, but instead, it’s about thoughtfully choosing one’s initiatives to generate both a financial return and a positive impact on society. A new age of investing is emerging as investors no longer have to sacrifice returns while changing the world.
Why Impact Investing Is Here to Stay
The objective of impact investing is to align investment strategies with the intent to generate positive social impact while producing financial returns. The term impact investing may sound relatively new to most people, but it has actually been around for a number of years. When impact investing first developed, it was viewed more as philanthropic in nature. The early iterations of impact investing provided investment capital through grants or endowments for various initiatives, but these investors didn’t expect excess returns; they were only looking to receive their initial capital back. The early model wasn’t designed to generate market-rate returns.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A couple of years ago, impact investing wouldn’t have been appealing to the mainstream investor. If you were planning for retirement, you most likely would be invested in specific holdings that could generate some sort of return on investment. Unfortunately, impact investing was not equipped to do that. However, as the market has matured, investors are now finding they can actually achieve returns while creating meaningful change. Investors no longer have to choose between wanting their money to serve a greater purpose or meeting their financial goals. For people who are already donating or volunteering for specific causes, this is essentially another way to do so while also having the potential to earn a financial return.
One of the reasons you are seeing such a rise in popularity and more conversations about impact investing is that people of all ages and incomes desire to be more philanthropic. It’s no longer just the ultra-wealthy who can foster change. Along with a cultural shift, 2020 reinforced the need for impact investing. COVID-19 changed the fortunes of so many people and shed light on the disparity in the U.S. and in foreign countries. No one was immune to the economic downturn, but minority and low-income households were disproportionately affected. Impact investing is a way to try and tackle those underlying problems that disproportionately impact certain groups of people.
How It’s Different from Other Investing Models
You may be asking yourself, how is impact investing different from what is already on the market, such as environmental, social and governance (ESG) or socially responsible investment (SRI)? On the surface, all these different types of investment strategies aim to do good and reflect the investor’s social and environmental values.
However, a fair amount of ESG is viewed more as a risk-management tool. Investors believe that if companies exhibit ESG factors, they will be less risky over time and will have better financial performance. In the end, ESG’s main objective is reliant on financial returns. SRI is geared toward selecting investments that fall under specific ethical guidelines, whether it be because of someone’s religion, political beliefs or personal values. Investors who use SRI are still interested in making a profit, but they align it with their morals.
Impact investing takes it one step further by recognizing that the good or service a company provides is attempting to change the lives of the people it touches for the better. It’s not just the company doing well by their employees or the environment, but having an added societal value for the people who use their goods or services. For instance, investing in an educational technology company that creates learning software specifically for children would be one way to capitalize on impact investing. Another example would be investing in bonds that underwrite and support low-income housing, which in turn provide stable, affordable housing, especially for women and minorities. Creating affordable housing takes the pressure off families so they can meet other basic needs. Both of these examples showcase how investments tied with the right company or organization can make a difference for the greater good.
Impact investing allows people to have an impact on the world. They want to know they are achieving something meaningful and the money they allocate into these companies is making a difference in society. Impact investing can create big changes through real people.
-
Nasdaq Leads a Rocky Risk-On Rally: Stock Market TodayAnother worrying bout of late-session weakness couldn't take down the main equity indexes on Wednesday.
-
Quiz: Do You Know How to Avoid the "Medigap Trap?"Quiz Test your basic knowledge of the "Medigap Trap" in our quick quiz.
-
5 Top Tax-Efficient Mutual Funds for Smarter InvestingMutual funds are many things, but "tax-friendly" usually isn't one of them. These are the exceptions.
-
Social Security Break-Even Math Is Helpful, But Don't Let It Dictate When You'll FileYour Social Security break-even age tells you how long you'd need to live for delaying to pay off, but shouldn't be the sole basis for deciding when to claim.
-
I'm an Opportunity Zone Pro: This Is How to Deliver Roth-Like Tax-Free Growth (Without Contribution Limits)Investors who combine Roth IRAs, the gold standard of tax-free savings, with qualified opportunity funds could enjoy decades of tax-free growth.
-
One of the Most Powerful Wealth-Building Moves a Woman Can Make: A Midcareer PivotIf it feels like you can't sustain what you're doing for the next 20 years, it's time for an honest look at what's draining you and what energizes you.
-
I'm a Wealth Adviser Obsessed With Mahjong: Here Are 8 Ways It Can Teach Us How to Manage Our MoneyThis increasingly popular Chinese game can teach us not only how to help manage our money but also how important it is to connect with other people.
-
Looking for a Financial Book That Won't Put Your Young Adult to Sleep? This One Makes 'Cents'"Wealth Your Way" by Cosmo DeStefano offers a highly accessible guide for young adults and their parents on building wealth through simple, consistent habits.
-
Global Uncertainty Has Investors Running Scared: This Is How Advisers Can Reassure ThemHow can advisers reassure clients nervous about their plans in an increasingly complex and rapidly changing world? This conversational framework provides the key.
-
I'm a Real Estate Investing Pro: This Is How to Use 1031 Exchanges to Scale Up Your Real Estate EmpireSmall rental properties can be excellent investments, but you can use 1031 exchanges to transition to commercial real estate for bigger wealth-building.
-
Should You Jump on the Roth Conversion Bandwagon? A Financial Adviser Weighs InRoth conversions are all the rage, but what works well for one household can cause financial strain for another. This is what you should consider before moving ahead.
