Just as you’ve crafted your financial journey to secure a prosperous future for yourself and your family, you’ve also undoubtedly felt the tug of responsibility that comes with privilege. Your hard work has positioned you in a place where you can make a meaningful difference, not only in your own life but in your communities and in the environment.
While you’ve generously contributed to various causes over the years, you’re ready to consider a more intentional approach to philanthropy, one that aligns with your values, goals, and financial resources. Philanthropic financial planning offers a strategic path to channel your resources towards impactful ventures while ensuring a lasting legacy of giving.
In this article, we’ll explore several strategies designed to infuse your financial decisions with the power to drive positive change. By putting your money to work with ventures that support your values, you can amplify your influence and create an impact that extends far beyond wealth accumulation.
Getting Started With Charitable Giving
What is impact investing?
Impact investing directs your charitable contributions intentionally toward ventures that support positive change for people and the planet.
What investment strategies can I use to support communities?
Donor-advised funds
Program-related investments
ESG Investing
Crowdfunding investments
Impact Investing
What It Is:
Grander than growing your money, impact investing is the intentional directing of your charitable contributions toward ventures that support positive change for people and the environment. It’s a conscious choice to align your investments with your values, seeking both financial returns and measurable social or environmental impact.
Impact investing isn’t limited to traditional investments. It encompasses a range of opportunities, including supporting businesses, funds, and projects that aim to achieve tangible social or environmental outcomes alongside financial gains. Additionally, impact investing can involve donating to nonprofits or backing initiatives that blend charitable funds with investment capital.
Why We Like it:
- Higher Purpose: Impact investing initiates a ripple effect of giving that transcends mere wealth accumulation. Your returns become more than just numbers on a statement, they become a force for positive change in society.
- Alignment of Charitable Goals: Eliminating the divide between investment placement and personal values, impact investing synchronizes your financial and philanthropic goals. By aligning more of your assets with philanthropic objectives, impact investing becomes a potent tool for effecting positive change.
- Conflict Mitigation: Aligning your ethics with your financial interests helps to avoid internal conflicts that arise from owning shares in companies whose values contradict your own.
Donor Advised Fund
What It Is:
Donor Advised Funds (DAF), also known as charitable giving accounts, are managed by a third-party institution, like Schwab Charitable by Charles Schwab. Instead of making donations to charities directly, you contribute assets to your DAF where they are invested. The assets in your fund are distributed to the charitable organization(s) of your choice over time as you elect.
Why We Like It:
- Tax Savings: DAFs offer immediate tax deductions for contributions, the ability to avoid capital gains taxes, and potential investment growth, which will make your dollars go further in supporting the causes you care about. Additionally, Donor Advised Funds offer tons of flexibility, so you’re not obligated to donate everything by a specific time period. You can support your favorite charities on your timeline and as you see fit.
Program-Related Investment
What It Is:
Program-related investments (PRIs) are made by foundations or charitable organizations aligned with their philanthropic mission. PRIs encompass loans, loan guarantees, equity investments, or other investments advancing the organization’s purpose. Some funders even make equity investments in charitable organizations or commercial ventures for charitable purposes.
Why We Like It:
- Tax-Advantaged Community Support: Most PRI funds support affordable housing and community development, along with various capital projects like preserving historic buildings and providing emergency loans to social service agencies. Since PRIs generally benefit communities, the IRS offers tax benefits that allow private foundations to count them towards their annual distribution requirement.
ESG Investing
What It Is:
ESG stands for Environmental, Social, and Governance. ESG funds emerged as a practical consideration for conscientious investors like yourself. ESG criteria are used to assess a company’s sustainability and corporate responsibility standards related to its environmental efforts, social relationships, and governance effectiveness. Also known as socially responsible investing, the ultimate value of ESG investing depends on whether it drives real change or merely involves checking boxes and publishing reports.
Why We Like It:
- Conscientious Investing: By giving priority to ESG factors, investors can avoid companies engaged in environmentally harmful practices, such as fossil fuel stocks.
- Long-Term Outlook: Companies committed to sustainability are incentivized toward innovation to meet the demand for more sustainable products and services. These companies are focused on long-term, sustainable investments, such as renewable energy, that should lower their overhead expenses and drive future profit.
Crowdfunding Investment
What It Is:
Crowdfunding is a means for entrepreneurs and charities to quickly raise substantial capital by pooling small amounts of money from a large number of folks. By leveraging the power of social media, dedicated crowdfunding platforms such as GoFundMe and Kickstarter provide access to a broader and more varied group of investors. Equity-based crowdfunding, in particular, is gaining traction as it allows startups to secure funding without relinquishing control to venture capitalists.
Why We Like It:
- Low Barrier to Entry: With crowdfunding, the entry barrier is lowered, allowing you to contribute small amounts, sometimes as little as $10, to a range of projects. In return for your investment, you may receive products and services from charitable organizations or equity shares in new companies.
Final Thoughts
To embrace impact investing is to become a catalyst for meaningful transformation, amplifying your returns and giving priority to both financial gains and tangible social or environmental impact. Channeling your investments toward ventures that encourage progress for people and the environment elevates your investment strategy from simple wealth accumulation to personal philanthropic fulfillment.
Whether through donor-advised funds, program-related investments, ESG investing, or crowdfunding, the opportunities for you to drive change in areas that matter most to you are growing. As you find the right fit in impactful investing, remember the power you have to shape a healthier planet and better future for generations to come.
The financial advisors at SK Wealth are committed to empowering you through informed decision-making and thoughtful investing. Our financial planning process, The Integrated Financial Advantage™, has been crafted and honed over the past 25 years to ensure our clients receive personalized recommendations that allow them to live with intention, tomorrow and today.
