Are You Ready for Your Portfolio to Make a Difference?

Interest in aligning investments with personal values has grown in recent years. As a result, many investors are exploring opportunities that focus on environmental, social, or community-based outcomes alongside financial considerations.

Are You Ready for Your Portfolio to Make a Difference?

One approach that has gained attention is “impact investing”.

What Is Impact Investing?

Impact investments are made with the intention of generating measurable or observable social or environmental outcomes, in addition to financial returns. The specific criteria for these investments can vary based on individual priorities and values.

For example, an investor may choose to support companies that commit to environmental sustainability initiatives, such as reforestation efforts, or organizations that provide educational resources to underserved communities. The definition of “impact” depends largely on what matters most to you.

You may also encounter related terms such as socially responsible investing, or SRI, and environmental, social and governance investing, commonly referred to as ESG. These approaches use defined screening criteria that may emphasize ethical business practices, environmental stewardship or community involvement.

Understanding the Trade-Offs

Impact investing, SRI and ESG strategies involve unique considerations. Because these approaches may exclude certain companies or industries for nonfinancial reasons, the range of available investments may be more limited. As a result, investors may forgo some market opportunities, and performance may differ from strategies that do not apply such criteria.

As with any investment approach, impact-focused strategies involve risk, including the potential loss of principal. Outcomes—both financial and nonfinancial—can vary based on market conditions and the specific investments selected.

Setting Expectations

While many investors are motivated by the desire to make a positive difference, financial performance remains an important consideration. Impact investing does not guarantee specific results, and returns may be higher or lower than those of more traditional investment strategies. Establishing realistic expectations can help ensure that impact investing fits within your broader financial plan.

Tips to Consider Before Investing

If you are exploring impact investing, consider the following:

Clarify your values. Identify the issues that matter most to you, whether that includes sustainability, social equity, faith-based principles or another focus. Defining your priorities can help narrow your options.
Understand the investment types. Impact-focused strategies may be available through a variety of investment vehicles, including mutual funds, exchange-traded funds and individual securities. Each carries its own risks and characteristics.
Review available reporting. Some companies and funds publish impact reports that outline their goals and progress. While these reports can provide helpful context, they are just one factor to consider when evaluating an investment.

A Thoughtful Approach

Impact investing may offer a way to align your portfolio with your personal beliefs while still considering long-term financial objectives. Whether this approach is appropriate depends on your goals, risk tolerance and overall investment strategy.

If you have questions about impact investing or would like to learn more about available options, consider speaking with a qualified financial professional who can help you evaluate whether these strategies align with your individual situation.

Investing involves risk, including the potential loss of principal. Impact investing, SRI and ESG strategies do not ensure a profit or guarantee positive social or environmental outcomes.