There are many forms of investing and one of the more recent methods of investing is impact investing. It is where an investor will invest their money based on social or environmental effects to help them increase their investment. There are many different assets you can invest in such as mutual funds, stocks, bonds or microloans. Additionally, there are various stocks/ companies in which you can invest in. This could include anything from a beauty company that specialises in moisturiser and tattoo numbing cream in Australia or it could be an insurance broker.
A Brief Explanation Of Impact Investing
Impact investing is a simple concept that many people have used to increase their wealth. It helps to reduce the negative impacts of any social or physical events on the market.
A good example would be the COVID-19 pandemic. Many people invested in other stocks which could have benefited during the pandemic. Stocks which performed well-included e-commerce websites such as Amazon, eBay, Alibaba and more. However, it wasn’t just e-commerce websites which benefited during this period. Peloton was another stock that profited during this period.
Different Types Of Impact Investments
There are several different forms of impact investments. Just like other investment strategies, they provide a range of possibilities with returns. The key part of this strategy is that it aligns with financial return and the investor’s conscience.
There are many opportunities for impact investing because you can choose different economies. Impact investments will spread across many industries. Those industries included healthcare, education, clean and renewable energy and agriculture. Let’s take a look at them in further detail.
Environmental, Social and Governance (ESG)
Numerous investors have made millions from ESG investing because it is in demand. If you are not sure what this type of investment is, it is when an investor will research companies that have an ethical approach to their methods. They also prioritise the well-being of employees and tend to have good staff retention. Usually, these companies will also have a sustainable mindset towards their actions, helping to reduce their carbon footprint.
Socially Responsible Investing (SRI)
It is another method of investing where investors pick investments based on specific ethical guidelines. For example, investors may invest in companies that manufacture cigarettes as this market is becoming smaller due to governments banning tobacco-based products.
Other Considerations
The rise of impact investing is mainly due to the younger generation which is Gen Z and millennials. They invest in these types of companies because they want to feel like they are giving something back to the community. As more Gen Zs and millennials invest, this method of investing is likely to increase.
Another reason why people are using this strategy is because it is proving to be successful. In fact, according to a survey by the Global Investing Network, 88% of investors reported their investments were surpassing their expectations.
This method of investing will not only influence more investors to use this strategy but will also improve companies. These companies will put more focus towards social responsibilities and go with a more ethical approach to their business decisions.
Understanding The Difference of ESG and Impact Investing
ESG practices often refer to the business decisions that will impact the returns for the company. For example, if the negative press has been released about a business using child labour, likely, this will likely negatively impact the returns of the business.
Impact investing is investing in businesses with other goals rather than generating additional revenue. It could include investing in industries looking to improve renewable energy, improving education standards or microfinance.
Different Methods Of Investing
There are several methods of investing you should learn before you commit to following the impact investing strategy.
Value investing is one of the most common strategies when investing. This is when investors see a stock valuation to be considerably lower than what they would expect therefore, when the value of that stock eventually does increase, they will make a profit. This requires a lot of due diligence to solidify that the stock you are investing in is a worthy company that is undervalued.
Spending time researching a stock can be time-consuming. However, the P/E ratio, price to earnings, has been a tool for many people who use this to identify undervalued stocks. The lower the P/E ratio is, the better for those investors.
Growth Investing
Rather than searching for affordable investments, growth investors constantly look for the next Amazon, Nvidia or Google. Predicting these stocks is very difficult but they can bring a lot of wealth in the long-term.
To many people, growth investing sounds like speculative investing. However, there is more thought process behind growth investing. The issue with growth investing is that it lacks dividends so don’t expect any dividends with your investments.
One of the issues with growth investing is that there are no easy figures to go off to help you decide on the investment. Nevertheless, growth stocks usually outperform falling interest rates. Moreover, if there is a downturn in the economy, growth stocks can decline almost imminently because people are preparing for the economic crisis.
Momentum Investing
Momentum is one of the easier strategies but it doesn’t guarantee instant wealth. Momentum investors will usually invest in a stock that is having a good period. As soon as that good period comes to an end and more people start to sell, they will also sell.
They heavily rely on data which is given by technical analysts and look for any patterns in the stock price. Although this strategy is more suited for short-term investors, it can also be seen as a long-term investment. For example, if a stock has been trading for a long time and has had an average growth of 10% each year, momentum will invest in this, hoping it will profit in a year. It could be anything such as a healthcare referral or insurance company. No matter what it is, if the insurer sees the continued growth in a stock, they will invest in that stock.
Things To Remember Before Investing
Investing can be an excellent method of increasing your wealth however, there are many things which you need to remember. You need to find a method that suits your financial goals. There are numerous ways to invest that suit different financial goals so ensure you research those strategies. Additionally, you should never invest in desperation. Panic investments are like betting on a team to win a football game. Plus, you will fall for investment fraud if someone has reached out to you.
Investment fraud has increased significantly, especially with the use of AI. AI can copy the voices and create AI-generated videos of celebrities. It has led several people to seek fraud recovery to recover their losses; however, some people never see their money again. Make sure you invest with a regulated broker before giving people your money who you do not know.
