With some planning and preparedness, impact investing can be accessible to you. This five-step personal finance guide to plan financially to make your first impact investment is a good start for getting ready to invest with impact and for impact.
1. To Invest or Not Invest?
Answering this question starts with reflecting upon and understanding your overall life, impact, and investment goals.
- Do you have significant life goals around the corner (buying a house, getting married, having a baby, going back to school, starting a business, caring for an family member or aging parent?) that may require a large financial commitment?
- Do you want to make a difference, be a leader, or achieve something beyond just financial return with your investment activities?
- Are you ready, willing, and able to commit time and energy towards investing with impact and for impact?
- Impact investing is a long-term investment strategy – are you ready and willing to dedicate a part of your investments and savings to impact investing?
2. Seeing Where You Stand Financially
Now that you have thought about your broader life, impact and investment goals, let’s take a look at your financial situation and determine whether there is financial capacity or constraints that could affect your decision to invest with and for impact.
- What are your total savings? How much of that is designated for retirement savings and how much of it is discretionary savings (i.e. not specifically for retirement or other specific financial goals)?
- What other assets do you own that have value (your home, other investments, investment in your own business, other collections, artifacts, and tangible items of value)?
- What is your income? Is that a consistent, reliable income? It is expected to go up or down in the foreseeable future?
- What are your expenses, monthly commitments and obligations? Are these liabilities and expenses expected to go up or down in the future?
- Do you have loans that need to be paid down?
3. How Much Can You Afford?
This third step is an introduction to asset allocation. Impact investing in private, purposeful ventures comes with a significant amount of uncertainty and risk, but with that comes the opportunity for meaningful impact and the potential for exceptional returns. Consider whether you can allocate a portion or percentage of your total investable investment portfolio towards impact investing. Here are things you should consider:
- Impact investing in private ventures is a long-term strategy and can be more risky
- Consider the total value of your investment portfolio
- Consider setting aside a designated amount from your portfolio
- Take a look at the mix of investments in your portfolio – are they invested in companies that you want to be invested in?
- Consider your risk tolerance:
- If you are at the lower end of the risk tolerance spectrum, but you have an appetite for risk – invest no more than 3% of your total portfolio
- If you are at the higher end of the risk tolerance spectrum and have a strong appetite for risk and good, reliable income in the foreseeable future – invest no more than 10% of your total portfolio
- If you don’t want to change the mix in your current portfolio, start saving or setting aside money toward an impact investment – $14/day or $420/month adds up to just over $5,000 after a year
4. Working With Your Financial Advisor
Your impact investing activities do not need to happen in isolation from the rest of your financial and investment portfolio. Working with your financial advisor is a great way to ensure that all of your financial and investment goals and objectives are addressed – as well as your impact investing aims.
- Discuss your investment goals and wishes with them
- Tell them how much you want to allocate to impact investing and private ventures
- Seek their help with getting the rest of your financial house in order – i.e. pension and retirement, house-buying and mortgages, saving for education
5. What to Invest In
I’m sharing with you some examples of impact investing opportunities, to give you an idea what types of opportunities are out there. Identifying and evaluating opportunities that align with your values and could potentially meet your objectives requires further information about the risk profile of investments and thorough due diligence on investment opportunities. The following investing ideas are just a sample and introduction to the realm of potential investments available.
Don’t invest your whole allocation all at once. Invest over time and in a number of ventures (or in a fund that will invest in a portfolio of ventures to benefit from diversification).
- Bonds, debt-based, or interest-bearing investment products may offer investors a steady return in the form of an interest rate. Examples include community bonds in Ontario, the RSF Social Investment Fund or Calvert Foundation’s Community Investment Note
- Impact investing funds such as Pique Venture Investments (VCC) Inc. give you an opportunity to invest alongside other investors in a portfolio of ventures. This is a way of diversifying, especially if you do not have a lot of money to build your own diverse investment portfolio of impact ventures.
- Equity shares in private companies that have a social mission or are impact-focused have a high-risk profile, but can have the greatest potential for growth and positive impact. Typically accessed through impact-based angel investing networks, the landscape is evolving as equity crowdfunding enters the mainstream – watch this space!
More tips and tools for getting started in impact investing can be found in Integrated Investing: Impact Investing with Head, Heart, Body, and Soul – available at all major online book retailers including Amazon.
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