How soon would you want to know if your investment advisor wasn't telling you about the three major investment types? If you've only heard of two - Variable and Fixed, then you may have a problem. Unfortunately, many investment advisors routinely fail to present all three types: Variable, Fixed, and Indexed as valid investment choices to their clients. This is normally because they are unable to offer all three options or they have a personal dislike for one or more of these investment types. So what is the difference in these investment types and what do the terms mean? The simplest answer is that these terms define how interest is earned on your investment. More specifically, it tells you how your money is invested and if your money is protected from market fluctuations. Let's take a look at these various investment options.
A Variable investment is one where your money is typically invested in stocks or mutual funds. The performance of these stocks or funds varies and is not guaranteed - hence the term "variable investment." Variable investments have many key benefits. They allow you to earn interest by investing in a single company (individual stock), multiple companies, or a specific segment of the market (mutual funds). You can even invest in an entire Index like the Dow Jones or S&P 500. Also, variable investments allow for the greatest return and historically have outpaced all other investment options.
Just as traditional investors are willing to make a trade off between risk and return, social investors are willing to make a trade off between risk, return and social impact. If an enterprise is doing something that's improving the environment, for example, a social investor may be willing to give up some financial return or assume greater risk on that investment depending on his or her individual comfort level. In short, social investing can be defined as considering the social impact of an enterprise when making investment decisions. By this standard, a number of investment approaches fall under the umbrella of social investing: mission investing, responsible investing, double-bottom-line investing, triple-bottom-line investing, ethical investing, sustainable investing and green investing.
Within the universe of social investing, there are two broad categories: social screening and impact investing. In the social screening methodology, an investor comes up with a list of social standards that he or she wants his or her investments to meet. The investor eliminates any company that does not meet these standards and then invests in the "socially responsible" companies that do meet the standards in a way that meets the investors risk and return objectives. A number of socially responsible mutual funds have emerged that use such an approach. They adopt a social screening methodology, define a large basket of investments that adhere to those standards and then have their management company invest within that basket to meet the financial objectives of the mutual fund.
Cash Flow Investment Robert T. Kiyosaki in his book explains this real estate investment strategy. He argues that the best investment you get is when you find a property at a bargain and then purchase it with as much debt as possible and then generate a cash flow from the difference between the monthly rent and the mortgage instalment. This method is highly interesting and requires you to really spend time looking for such a real estate investment that fits in that criteria.
So what exactly are these impact investment enterprises? To get a better sense, let's look at some of the sectors that qualify as impact investments. Affordable housing is one sector familiar to most people. Most people support an organization like Habitat for Humanity by making donations, but a foundation, for example, might support them by providing a low interest loan to fund the organization's projects. Microfinance is another impact investment sector. A microfinance institution makes small loans to entrepreneurial people in developing countries to give them the opportunity to start or grow their own business and lift themselves out of poverty. A microfinance institution works similar to a bank, so it is able to generate income and support investors.
A Variable investment is one where your money is typically invested in stocks or mutual funds. The performance of these stocks or funds varies and is not guaranteed - hence the term "variable investment." Variable investments have many key benefits. They allow you to earn interest by investing in a single company (individual stock), multiple companies, or a specific segment of the market (mutual funds). You can even invest in an entire Index like the Dow Jones or S&P 500. Also, variable investments allow for the greatest return and historically have outpaced all other investment options.
Just as traditional investors are willing to make a trade off between risk and return, social investors are willing to make a trade off between risk, return and social impact. If an enterprise is doing something that's improving the environment, for example, a social investor may be willing to give up some financial return or assume greater risk on that investment depending on his or her individual comfort level. In short, social investing can be defined as considering the social impact of an enterprise when making investment decisions. By this standard, a number of investment approaches fall under the umbrella of social investing: mission investing, responsible investing, double-bottom-line investing, triple-bottom-line investing, ethical investing, sustainable investing and green investing.
Within the universe of social investing, there are two broad categories: social screening and impact investing. In the social screening methodology, an investor comes up with a list of social standards that he or she wants his or her investments to meet. The investor eliminates any company that does not meet these standards and then invests in the "socially responsible" companies that do meet the standards in a way that meets the investors risk and return objectives. A number of socially responsible mutual funds have emerged that use such an approach. They adopt a social screening methodology, define a large basket of investments that adhere to those standards and then have their management company invest within that basket to meet the financial objectives of the mutual fund.
Cash Flow Investment Robert T. Kiyosaki in his book explains this real estate investment strategy. He argues that the best investment you get is when you find a property at a bargain and then purchase it with as much debt as possible and then generate a cash flow from the difference between the monthly rent and the mortgage instalment. This method is highly interesting and requires you to really spend time looking for such a real estate investment that fits in that criteria.
So what exactly are these impact investment enterprises? To get a better sense, let's look at some of the sectors that qualify as impact investments. Affordable housing is one sector familiar to most people. Most people support an organization like Habitat for Humanity by making donations, but a foundation, for example, might support them by providing a low interest loan to fund the organization's projects. Microfinance is another impact investment sector. A microfinance institution makes small loans to entrepreneurial people in developing countries to give them the opportunity to start or grow their own business and lift themselves out of poverty. A microfinance institution works similar to a bank, so it is able to generate income and support investors.
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