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I Can't Afford Impact Investing, Can I?
I’m not a financial advisor; nothing I write in Superpowers for Good should be considered investment advice. You should seek appropriate counsel before making investment decisions.
“Impact investing is for the rich, not me, right?” That’s what a lot of folks seem to think. No matter how limited your resources, I invite you to consider for a moment that impact investing may work remarkably well for you. Hear me out!
How Big Should an Impact Investing Budget Be, Anyway?
First, let’s establish that you can literally and actually begin investing for impact with as little as $10. While there is no practical upper bound, I’m focused on helping ordinary folks find a path toward impact—if you can do more, great!
Wait, What Is Impact Investing?
Now, let me take a moment to define impact investing. Investing in public markets with a sustainability screen or a filter for good corporate citizens based on ESG, environmental, social and corporate governance, is wise, but it isn’t really what practitioners consider impact investing.
The reason is pretty simple. When you invest in Tesla today, the company doesn’t get the money. The hedge fund that is selling its Tesla shares gets the money so it can invest in Amazon instead this week. There is no impact.
When, instead, you make a direct investment in a company—typically a smaller, privately owned one—that company receives the money—money it wouldn’t have if you didn’t invest. Even if your investment is small, it makes a difference. It makes an impact.
The more the company’s mission aligns with your social impact goals, the more impact potential your investment has.
The easiest way for ordinary folk like me to invest for impact is via regulation crowdfunding. FINRA-regulated portals like Wefunder, StartEngine, Republic and dozens of others offer securities that anyone can buy. There are hundreds of securities offerings happening right now. You can pick and choose.
Investing for impact via crowdfunding is what I refer to as impact crowdfunding. I also use the term to mean the reverse, raising money for a social enterprise via crowdfunding.
Where Is My Impact Investing Budget Hiding?
There are three common places where your impact investing budget could be hiding:
Your investment portfolio
Your charitable giving budget
Your entertainment budget
Let’s break this down one category at a time.
Your impact investing budget may be hiding in plain sight.
You could find your impact investing budget right in your investment portfolio.
Those of us of ordinary means are less likely to have a lot of money squirreled away, except for purpose-built, tax-protected college funds and retirement savings. Those funds are often invested in either bank accounts where they are guaranteed or in public markets.
If you call the stockbroker (no one does this anymore) and ask them to help you make investments via crowdfunding, they’ll say, “No can do.” It isn’t illegal; it’s just that firms like Schwab and Fidelity don’t help ordinary clients make private investments.
Enter self-directed IRAs. There are IRA custodians known as self-directed IRA trustees that hold your assets for you and help you make a wide variety of legal investments that aren’t traded in the stock market.
The problem here is fees. If you don’t have at least $100,000 to transfer from a traditional IRA into a self-directed IRA, the costs may overwhelm your returns. You could pay hundreds of dollars per year in fees—too much for a small portfolio.
Another way to see this is that you may want to consider slowly building a crowdfunding portfolio as part of your long-term financial plan—not as a hobby or philanthropy. Judiciously investing a little every month over time will add up to quite a portfolio.
If you still don’t see your impact investing budget in your investment portfolio, never fear; there are more places to look.
How Do I Use My Charitable Giving Budget for Impact Investing?
Investing for impact can yield results that align well with your charitable giving. Everyday folks are frequently quite generous—often more so as a percentage of income or assets than wealthy folk who are lauded for their philanthropy.
Personally, I count among family and friends many who give more than ten percent of their income to charity. I am a big fan of charitable giving and continue to support a variety of nonprofits.
At the margins, however, I find myself shifting some of that giving to investing. You may want to consider this, too.
While I continue to honor long-standing commitments to giving, I scrutinize new opportunities more carefully as I look actively for impact opportunities.
Some of these impact investments made via crowdfunding are in the form of debt to companies that can quickly begin repayment. This return of capital enables me to continue investing. Giving money away doesn’t offer me the same ability to have repeated impact with the same dollars.
Is there some impact investing budget hiding in your philanthropic budget?
Wait a Doggone Minute, I’m Not Canceling Netflix!
As you look at your entertainment and recreation budget, there may be more money there than you imagine.
Few of us go without cable television or streaming services. Most of us spend about $1,000 per year on that.
What about eating out? Golf, skiing, boating, fishing, biking, running, reading, etc.? You are likely spending more on entertainment and recreation than you think. There is nothing wrong with that!
There are some fun ways to do impact crowdfunding. One example is the Impact Cherub Club I run. It is open to everyone, and we don’t charge anyone a dime. We don’t force you to invest. We collaborate on due diligence. Our members genuinely look forward to the meeting. We’re becoming fast friends.
It’s a lot like making friends in any other club or group. If you’re making friends in your investment club, I suspect it feels more like entertainment than investing. The difference is the returns you earn in place of just spending!
Look carefully to see if there isn’t a bit of money for impact crowdfunding hiding in your entertainment budget.
Didn’t Find Your Impact Investing Budget, Keep Looking!
If this didn’t help you find $100 per month—or a more comfortable number—for impact investing, I encourage you to keep looking.
Impact investing can earn great returns in the long run. (If you missed my webinar last week on How to Make Money With Impact Crowdfunding, click here.) With patience and a bit of diligence, it can become an essential part of your retirement plan.
Impact investing also drives social impact. You can help address the problems you want to solve with your investments. For a wide range of problems, from climate change to poverty and social justice, there are investment opportunities in the crowdfunding space that allow you to align your investing with your giving.
Finally, impact investing really can be fun. I find it especially fun with a group of peers, but you may enjoy the hobby of impact crowdfunding on your own. The opportunity to build a portfolio around entrepreneurs and small business owners who are mission-aligned, members of your local or other community or just good people can be more fun than golf—especially if you play like I did before I retired my clubs!
Keep looking. You can find a way to join the super crowd of people in the impact economy who make a difference while making a financial return.
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