When you make an investment, you’re committing some of your money to have it work for you. It means putting off instant gratification to build a healthy financial future while you live your life now. Prioritizing your future needs over the present is a responsible decision, and with impact investing, your investment decisions can encourage growth not only in your financial portfolio, but in the environmental, social and corporate governance causes in which you believe.
If you’re new to investing, the process may seem overwhelming. Where do you begin? How do you know where to put your money? When should you expect to see a return on your investment? How do you know the organization you’re investing in is a responsible one? Falcons Rock Impact Investments can help new investors learn more about the process. Here are some tips that could help you see a return on your investment.
Set Concrete Goals and Stick to Them
Depending on where you are in life and what you hope to gain from investing, you should ask yourself some questions. Think about your financial goals, how much money it will take to achieve them, and how time-sensitive your situation is. Do you have the time to take risks and recover from them, or should you take things slower because you’re closer to retirement? What type of investments do you want to make? What are your short-term and long-term financial needs? Where do you want to hold your investments if you want tax deductions? Answering these questions helps you get the hard numbers you need to keep yourself accountable.
Learn the Language
There’s a lot of terminology in the investing world that may seem intimidating to learn, but here are some of the basics you’ll need to know. A financial planner can help you with your particular financial situation.
Investment vehicles are the type of assets available to own. Each type of asset has its own set of laws, tax rules, pros and cons based on where you are financially. One of the best moves is to acquire productive assets that make money after the initial investment; think buying a building and charging rent instead of buying a painting and putting it in storage.
Stocks offer investors a share of a business’ profits and losses. They tend to be most rewarding for investors building wealth over time, thanks to a high return potential. They also can be more volatile than other investments, making them better for higher risk tolerances and longer time horizons.
Bonds are fixed-income investments. They create a steady stream of income and are more stable than stocks, but tend to offer lower returns.
Cash refers to physical cash or investments such as CDs, money-market or savings accounts. They have the lowest risk, but also the lowest potentials for returns.
Mutual funds and exchange-traded funds (ETFs) pool money from many investors to invest in assorted stocks, bonds or other vehicles.
Active management is when investors, brokers or fund managers pick their own investment vehicles. It’s also what most people are referring to when they talk about stock investing. This is a good strategy to employ for investors who want to try to beat the market, and have time to research vehicles.
Passive management is when investors, brokers or fund managers let their holdings follow a third-party index. This strategy is more about matching market performance, and is good for investors who don’t have as much time to research individual stocks.
Investing is a long-term activity where your money grows over time, but speculating is more of a gamble. Speculating is when an investor puts money into a vehicle he/she doesn’t understand, whether it’s because the investor is not familiar with the field and competition, the company is new, or there are nebulous guarantees of “going through the roof.” It makes big promises, but rarely delivers. Investing is a safer route that allows you to hit your financial goals down the road rather than taking a big risk now.
There’s no single term for socially responsible investing (SRI); it goes by names as varied as “ethical investing,” “green investing,” “impact investing” and “sustainable investing,” among many others. These are investment vehicles that consider environmental, community, societal and corporate governance criteria. It looks to support projects and organizations that improve the world and often practice shareholder engagement to ensure improved practices.
Eliminate High-Interest Debt
The same compounding that helps your investments grow also makes your debts grow. There’s no bad time to start saving, but you don’t want your debt growing while you’re putting away money to save. Some kinds of debt, such as home mortgages, are low-interest and good for your taxes, but high-interest debt is important to get off your shoulders as soon as possible if you’re planning on investing.
Save as Much as You Can
A common piece of financial advice is “Pay yourself first.” This is especially true when it comes to responsible investing. Set aside some money out of each paycheck to save or invest, and use the rest as you normally would. Save as much money as you can based on your financial situation; a good goal is 10 percent of your total income dedicated to investing. Make 401k salary deferrals up to the level of your company match (if any), and the remainder of your 10% savings goal into personal investments. If you do not have a company match, target a 50/50 mix between tax-deferred and taxable accounts. But even if you invest less than that, your money still will work for you. Investing isn’t the same for everyone, but everyone can benefit by starting as soon as possible and making it a habit.
Look at Where to Start
Once you understand how investments work and get your financial situation in good shape, you’re ready to start investing. If your employer sponsors a retirement plan, such as a 401(k) or 403(b), take them up on the offer as soon as you can. Once you invest the money in the account, choose the vehicles that make sense for your situation and criteria, including sustainability and responsibility. If you’re eligible for a Roth IRA, you can fund that up to the maximum contribution limits. If you’re married, encourage your spouse to do so as well. With that done, you could add investments to a brokerage account, participate in a direct stock purchase plan, buy real estate, or fund other opportunities to grow your wealth.
Invest in the Future With Falcons Rock Impact Investments
There are a variety of options available for responsible investing, and Falcons Rock Impact Investments can help. Like you, we believe in the power of the individual to make a positive impact on the world. Your investments can help support organizations that are doing valuable work while taking steps toward a financially secure future. Impact investing is growing, and your portfolio can grow as well. Learn more about our impact investing processto get started.