Investing warning: What to do in the face of unpredictability | Personal Finance | Finance
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It is hard enough to keep above market trends in traditional investing, but when it comes to impact investing the challenges compound with trying to find the correct companies and markets that align with one’s values and return expectations. Adam Bullock, UK Director of TopCashback, exclusively shared with Express.co.uk some of the most vital tips to succeed in impact investing.
“Impact investing is an all-encompassing term but in short, refers to a type of investing whereby its investors seek to produce both financial and social and or environmental returns.
“For the individual, impact investing is a great way to support issues that are important to you, whilst helping your money to go further. With many millennials seeing the appeal in this, the trend is likely to continue upwards. As well as this, the more people invest in companies of which they support the mission and message, the more companies will engage in social responsibility.”
However, almost equally important is coming to terms with the fact that no single investor can know absolutely everything about an investment, but rather should note what it is they are looking for and focus on that.
Mr Bullock continued: “Like with anything, you could spend a lifetime researching and be a master of nothing. You don’t need to have an encyclopaedia’s worth of knowledge, but you should decide on your priorities, and go in with eyes wide open. Understanding why you want to invest is the most important place to start.”
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He added that impact investing starts with intention: “With impact investing, you should recognise whether your intentions are financial first, where your main objective will be a financial gain versus the social or environmental outcomes. Or whether you are an impact first investor – where you will prioritise the social or environmental good, with a financial return secondary. Perhaps you are somewhere in the middle.
“Whatever your values or objectives, do your research and educate yourself on the companies you want to invest in, and the types of investments that are suitable to you and your budget.”
Diversify
In all investment portfolios it is recommended to have some level of diversification to ensure that if a single market tanks then the effects will not be as great on one’s returns, essentially minimising as much risk as possible.
Mr Bullock commented: “When it comes to building a portfolio, spread investments across a range of stocks from different industries, countries and company growth stages. There are various types of risks to think about too before investing – political, currency, reputational, legal and exit risks should all factor into your decisions.”
He shared some of the most common types of impact investing one could diversify their portfolio with: green bonds, which are environmentally focused, social enterprises that look to achieve positive social outcomes through a financially sustainable model.
Development impact bonds require investors with a specific vision that will be shared by the company and social impact bonds have returns calculated on the measured outcomes of the business.
Have realistic expectations
“Your expectations around returns will obviously link to your priorities i.e. are you finance first or impact first. If you sit in the latter camp, you could still expect some kind of financial return in the long run too.
“However, as with any investments, nothing is guaranteed. Whether you’re putting money into emerging markets or developing economies, it’s important to remember that there is always an element of risk – a diverse portfolio (see above) will help to alleviate this.”
Start small
Mr Bullock noted that impact investing doesn’t need years of experience and accumulated knowledge: “If you’re keen to start impact investing but concerned that you don’t have an encyclopaedia of knowledge, then go in on a small scale. Making the first leap is usually the biggest hurdle but as long as you know what is important to you – financial returns versus social rate of return for example, then just starting will give you more confidence to continue.
“However, if you want a practice run, you can put together a ‘Mockfolio’ – in other words, a virtual portfolio of impact companies, to see how different markets perform over a period of time. Sites like MarketWatch offer this when you sign up for an account.
“If you still feel too intimidated by the vast amount of information that’s out there, consider talking to a financial advisor first,” he concluded.
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