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What Is Impact Investing?
Impact investing has a positive environmental focus, but what about its future?
Published January 14, 2024.
Impact investing is gaining popularity among fund managers, institutional investors, and traders.
Impact investing channels funds into environmentally and socially beneficial companies, providing both a goal and a positive impact. This differs from traditional investing which focuses solely on profit.
Investors play a vital role in identifying businesses aligned with impact investing using a variety of instruments such as mutual funds, exchange-traded funds (ETFs), and bonds.
For example, the Bill & Melinda Gates Foundation's investment in Global Partnerships supports microfinance institutions and social enterprises, helping to combat poverty and enhance healthcare in underserved areas while generating financial returns.
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The Future of Impact Investing
Impact investing is currently in the spotlight, but it faces criticism for neglecting industries vital to the economy, like fossil fuels.
Still, the stock market's verdict remains uncertain. Fund inflows have been declining since their 2020 peak, and impact funds have struggled to match the performance of traditional alternatives. Additionally, political backlash may deter some investors in the short term. In essence, impact investing is no less risky than other forms of trading, and should only be considered by traders who have a solid grasp of the fundamentals of trading psychology.
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