Welcome to the 2nd post in this 4-part series, Getting Started in Impact Investing. For more tips on getting started in impact investing, check out this recent post.
Have you ever stopped to wonder why we invest? I did. Since the financial crisis in 2008, I have been reflecting upon why we invest in the first place and what it means to invest. I wondered why the activity of investing exists and why we need it. Whilst structures, forms, and products are useful for managing our investments, the most important first step as a new investor is to understand the motivations and purpose of investing.
My friend, Dougald Hine, gave a talk in 2010 on the five purposes of money that inspired me to deepen my thinking about the motivations of investors. Dougald is an author and an entrepreneur and was named one of Britain’s 50 New Radicals in 2012 by Nesta, a not-for-profit charity in the UK that helps fund the development and realization of new ideas. The five purposes he identified are:
- Subsistence – a means to stay alive
- Security – a means to manage your future, to make the world less unpredictable
- Luxury – if something is a luxury, then you’re not dependent upon it
- Status – games by which people establish, hold onto, and change status
- Accumulation – the idea that more is in and of itself better
Dougald’s talk got me thinking, not about the purpose of investing, but rather the motivation of investors. I was more curious about exploring what drives a person to take action and invest.
Many of the investors I work with are motivated to “give back” in some way and help other people. However, I identified other motivations to expand this list.
Most impact investors want to do something good with their money, but unlike philanthropy and charitable donations, they also want the chance to get a financial return. There are other motivations for investing. I’ve compiled a list of the eleven most typical motivations I’ve observed:
- Status: To be the person who discovers the next big thing, to be the talent-spotter.
- Power: To influence and have power over business decisions.
- Leadership: To empower and help others and provide vision and direction.
- Connection: To connect with other investors and be part of an investor community.
- Security: To create financial security through the accumulation of assets and reserves to manage an uncertain future.
- Future Consumption: To enable future consumption, through the accumulation of resources that grow, multiply and can be used in the future to purchase goods and services.
- Obsolescence: To prepare for products and services becoming no longer useful nor serving purpose.
- Innovation: To proactively develop products and services that are useful and serve us better in the future.
- Legacy: To provide for future generations.
- Making Decisions: To gather new information or create new tools to help us make decisions.
- Exchange: To provide a means of exchange in the form of money, shares, or other financial instruments.
Now that you are thinking about impact investing, take a moment to reflect on your reasons. What are your motivations for investing? Do your motivations fit into any of the categories above? I invite you to share your thoughts!
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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.
