This month’s insight from Marguerita Cheng, CFP® Pro: There is more to life than building wealth, enjoying family, and taking a spontaneous personal day every few months. As we enter the season of giving, it’s time to reflect on how we can do more with a greater purpose and intent.
Reality check: Since we all have many personal and professional responsibilities, any spare time we have is precious. We can use that time to volunteer for causes and organizations that align with our values or commit to giving charitable contributions that will positively impact our communities. A $10 bill donated to the local food bank at the local grocery store checkout will help families enjoy a Thanksgiving meal, and it’s certainly a great start.
But what if there was a way to make that $10 bill double duty by investing it instead? It’s not always about return on investment – it’s about rethinking ROI as ‘return on impact.’ You can make a difference by exploring options beyond the traditional investment products and into the fascinating world of social impact investing.
What Is Impact Investing? You can have your cake and eat it too. Impact investing allows you to combine your desire to change the world and make intelligent investments. The best part is that your assets (money) align with the causes and issues that matter to you (heart), creating a ‘feel-good’ mentality.
Impact investing portfolios mainly exist to provide investors with a financial return while supporting companies and organizations whose primary mission is to create social and environmental change. Think clean water in developing countries, provide affordable housing for low-income families, or make clean energy options in rural communities worldwide.
Impact investing and philanthropy are often compared because they create opportunities for people in situations where little or none currently exist. The critical difference between the two is that charity does not expect a return on its financial investment.
How Does Impact Investing Work? As I mentioned earlier, impact investing funds invest money exclusively into entities and organizations with a social and environmental change mission. Many of these companies are startups making a difference around the world. Returns can be comparable to traditional investing with the added benefit of knowing that the investment has a global impact. This approach is different than investing in companies that act responsibly — either by using recycled materials to make their products or giving a portion of their profits to charity.
When Impact Investing Is Worth It: Only you can determine if impact investing is worth your consideration. Like traditional investment options, impact investing platforms typically provide options based on investor preferences. For example, if the social impact is more important than the financial return, you would invest in an impact-focused fund – an investment with a core purpose to create positive social impact and may result in little to no return.
Another benefit to these funds is the minimal amount of money required to begin making a difference. Kiva, a 501(c)3 United States nonprofit, is an example of a micro-lending firm that provides loans to borrowers looking to create a better future for themselves and their communities. When the loan is repaid, the lenders use this money to fund new investments, donate to a good cause or keep it for themselves.
If your priority is the financial return on investment, private debt and equity funds might be more appropriate. Such funds, known as finance-focused funds, are likely to have minimum initial contribution amounts and pre-established rates of return based on total annual contributions. Be mindful of investment and administrative fees affecting your overall fund performance.
Lastly, you can consider the social and financial impact returns with a blended or balanced fund, arguably the most common type of impact investment fund. Instead of expecting low or no return on investment or letting finances be the primary driver in decision-making, a balanced fund allows a social impact investment that brings you the best of both worlds.
The bottom line: Impact investing is considering when you are clear on your investment return expectations. Find the social causes that are most important to you and determine how much you can realistically set aside to invest. Then identify the funds that align with the required minimum rate of return you would like to achieve, and help you monitor investment performance. Regardless of your decision, your ability to make a difference in this world with impact investing has never been more remarkable.
About Marguerita M. Cheng, CFP® Pro: Rita is the founder and Chief Executive Officer of Blue Ocean Global Wealth. She has also been a spokesperson for the AARP Financial Freedom Campaign and a regular columnist for Investopedia & Kiplinger. Previously, she was a Financial Advisor at Ameriprise Financial and an analyst and editor at Towa Securities in Tokyo, Japan.
Certifications: CFP® professional, Chartered Retirement Planning CounselorSM, Retirement Income Certified Professional®, and a Certified Divorce Financial Analyst. As a Certified Financial Planner Board of Standards (CFP Board) Ambassador, Marguerita helps educate the public, policymakers, and media about the benefits of competent, ethical financial planning. She serves as a Women’s Initiative (WIN) Advocate and subject matter expert for CFP Board, contributing to the development of examination questions for the CFP® Certification Examination.
Awards: Ameriprise Financial Presidential Award for Quality of Advice and the prestigious Japanese Monbukagakusho Scholarship. In 2017, she was named the #3 Most Influential Financial Advisor in the Investopedia Top 100, a Woman to Watch by InvestmentNews, and a Top 100 Minority Business Enterprise (MBE®) by the Capital Region Minority Supplier Development Council (CRMSDC).
Rita volunteers for several organizations: CFP Board Disciplinary and Ethics Commission (DEC) hearings, she has also served on the Financial Planning Association (FPA) National Board of Directors from 2013-2015 and is a past president of the Financial Planning Association of the National Capital Area (FPA NCA).
Blue Ocean Global Wealth headquarters:
9841 Washingtonian Blvd., #200
Gaithersburg, MD 20878
301.502.5306 / 888.731.3117 (fax)