You want to support causes you believe in—but still make strides in your long-term savings. With impact investing, you may be able to have your cake and share some, too.

By Kate Rockwood
Updated November 19, 2020
Impact investing, guide to socially conscious investing (money and tree)
Credit: Getty Images

A new style of investing, called impact investing (consider it an offshoot of the more widely known socially responsible investing), makes it easier to support causes you believe in—and get a return on your hard-earned dollars.

In the early days of socially responsible investing, people would pull out big categories of stocks they found objectionable—Big Tobacco, for instance—and not be too concerned about whether the remaining companies were working toward positive change, says Jake Raden, co-lead of the impact team at former investing platform Swell. But for many people, this is no longer enough. They want to proactively put money behind causes they care about—say, invest only in clean-energy companies or firms that pay employees well. Now it’s possible to do just that in a matter of minutes (no fancy investing insights required), thanks to online platforms that offer diversified portfolios and transparent info about fees and performance.

And when it comes to performance, don’t worry you’ll have to sacrifice your returns, says Dave Nugent, head of investments at the online platform Wealthsimple. “What we’ve seen from our client base is that people who believe in more than just investing for returns end up having better outcomes,” he says. “That’s probably because they’re less likely to pull out money when the market dips, since they’re investing for more than just returns.” Read on for ways to invest no matter your goal.

If You Have a Particular Passion…

“If you want to align your investments with your values, one of the first questions to ask is ‘What are those values?’” says Priya Parrish, chief investment officer at Impact Engine in Chicago. If one issue jumps to the top of your list, there’s nothing wrong with picking a portfolio curated around that cause. Online investment platforms such as Newday offer portfolios themed by issue. Is gender equality important to you? Ellevest focuses on companies with women in leadership roles and on women-owned businesses that provide community services. Newday looks at a company’s gender pay parity, parental leave policies, and female leadership stats before giving it a place in the portfolio.

If You Like to Deal with a Real Person…

You can still go the online platform route and get personal attention. Wealthsimple offers free phone consultations with financial planners, who will discuss money goals and strategize how to get expense ratios down (portfolios are balanced automatically). Ellevest’s pros field unlimited texts, phone calls, and emails—or you can pony up for the premium level and have a certified financial planner map out money moves. Betterment connects users to its team of financial advisers through its mobile app and by phone. Rather not invest online? Visit the First Affirmative Financial Network to find a private adviser in your area who specializes in impact investing.

If You Want a Custom Mix…

You don’t want to pick one theme but don’t want to pick them all either. Now what? Try the automated online platform OpenInvest. Whatever unique blend of causes you care about, you can tailor an investment portfolio to match. The platform asks about your values, age, and investing goals, assesses your risk tolerance, and then creates a balanced custom portfolio of stocks and bonds across multiple industries. You could, for example, invest in companies with the highest score on the Human Rights Campaign’s Corporate Equality Index (which rates workplaces on treatment of LGBTQ employees) while also steering clear of any companies that earn more than 5 percent of their profits from tobacco.

If You Loathe Risk…

Check out Calvert Impact Capital. Since 1995, the nonprofit investment firm in Bethesda, Md., has raised more than $2 billion through a global portfolio of social projects, ranging from microfinance for women entrepreneurs to urban land conservation. You can invest as little as $20. Commit to a five-year term and you’ll get a 3 percent interest rate—a 15-year term snags you 4 percent. “That offers a modest return with exceedingly high social impact,” says Timothy Smith, director of environmental, social, and governance shareholder engagement at Walden Asset Management in Boston. “When the market was down, it was the best investment anybody had.”

If You Want to Help a Bunch of Causes at Once…

Online investment companies Wealthsimple, Betterment, and Aspiration all have socially responsible investing products that aid various issues. The sites make it easy to compare fees and past performance and to see how the companies build their portfolios—combinations of assets like stocks, bonds, mutual funds, and Exchange Traded Funds (ETFs). Wealthsimple and Betterment, for instance, prioritize ETFs, a basket of stocks or bonds. Aspiration actively manages its funds—meaning humans, not algorithms, tweak the mix. It also lets customers set their own fees and then donates 10 percent of the fee to charity.