A fully flexible way to invest
3 minute read
Staying invested during periods of uncertainty can be hard. Here, we explore how impact investing can help you to stay invested, and reap the associated financial rewards.
Who's it for? Confident investors
Staying invested during periods of uncertainty can be hard. One way to make it easier could be to align your investments with your values and the causes you care about. Through impact investing you may benefit from emotional returns that can help you to stay invested, and reap the associated financial rewards.
We believe one way to help investors to get and stay invested is by having investments which reflect their personal beliefs and desire to make a positive change in the world. Recently, we conducted research which showed that in times of volatility and falling markets, one in three investors would find it easier to hold investments if they were investing to address social and environmental challenges.
Investing in specific companies and projects that benefit society and the environment is one approach within the impact investing movement. Its aim is to generate both financial returns and a positive contribution to our world. This can be achieved by investing in themes like sustainable agriculture, healthcare, education, and clean energy, for example through companies developing innovative environmental solutions that are poised to benefit from the trend towards renewables.
Through investing in these themes, which support the UN Sustainable Development Goals (SDGs), investors can play a role in financing companies with the commercial solutions to address our most pressing issues. To achieve these SDGs by 2030, the UN estimated that it will require approximately US$5-7 trillion of annual investment. Private capital is increasingly needed because neither governments nor charity can solve these issues alone.
While it may be hard to deny the positive outcomes that can come from impact investing, how can it also benefit investors themselves? We know that it’s not just financial returns that drive investors, many also get satisfaction from emotional returns. This is most obvious with alternative luxury investments – such as art, wine, or classic cars – where investors often enjoy holding the asset itself, as well as any financial returns it may generate.
The same can apply to more conventional investments that create a positive impact on society. For example, investors get a feeling of purpose by supporting companies that are trying to solve climate change or address the issue of plastic pollution. Or, they feel they’re playing a part in wider societal movements by investing in companies with better gender diversity or with fair or living wage practices. Many people are also conscious of the legacy they’ll leave for their children and grandchildren and strive for a world with less disease, cleaner air, or greater social equality.
These emotional benefits can help encourage investing for the long term, as investors can find it easier to look beyond periods of stock market turbulence to the future benefits their investments are trying to create.
This is also important because by staying invested, they’re less likely to miss out on some of the best days in markets. In fact, missing out on just the best five days of performance over the past 20 years would have meant leaving the equivalent of 1% per year on the table in terms of returns; missing the best 30 days, over 10%. This is because many of the best days of market performance have often been at the beginning of a rebound. This underscores the importance of staying invested throughout the cycle – disciplined, long-term investors are rewarded.
To get started, you can either review your existing portfolio, and consider whether it follows an impact investing approach; or you can look to add new impact investments where appropriate. Also, while many impact investments often seek multiple positive outcomes, knowing which themes you feel most strongly about is useful. By selecting investments to which you have the strongest emotional connection, this may provide you with the best safeguard in times of market-induced anxiety.
Barclays Investments has reviewed the public documents from the fund managers of all the sterling denominated funds and ETFs available to buy on Smart Investor against their impact criteria.
The impact review does not include an assessment of the quality or effectiveness of the fund manager in taking the approach, nor does it assess the investment process itself and associated performance outcomes.
You should only be thinking about holding this investment for at least five years as it’s designed for the long term.
All investments can fall in value as well rise; you may get back less than you invest.
These are our current opinions but the future, as ever, is uncertain and outcomes may differ.
The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances. Smart Investor doesn’t offer personal financial advice. If you’re not sure about investing, seek independent advice.
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