What is the difference between value and impact investing? An overview.

Investing in firms that have a good social or environmental impact can be done in one of two ways: value investing or impact investing. Despite their apparent similarity, the two have a lot in common.

A key component of value investing is the search for cheap businesses with solid fundamentals and a history of expansion. Value investing aims to purchase equities below their intrinsic worth and hold them for an extended period of time. Value investors frequently seek out businesses with a potent competitive edge, a track record of reliable earnings, and a solid management group.

Impact investing, on the other hand, is a technique that aims to produce both monetary returns and social or environmental benefits. Impact investors frequently fund businesses that are attempting to address social or environmental problems, such as those related to healthcare, affordable housing, or renewable energy. Impact investment seeks to produce tangible social or environmental benefits in addition to monetary gains.

Here are some of the key differences between value and impact investing:

1. Investment goals: Value investing is primarily focused on generating financial returns, while impact investing seeks to generate both financial returns and positive social or environmental impact.
2. Investment criteria: Value investors look for undervalued companies with strong fundamentals and a history of growth. Impact investors look for companies that are working to solve social or environmental challenges.
3. Risk tolerance: Value investors typically have a lower risk tolerance and prefer to invest in established companies with a proven track record. Impact investors are willing to take on more risk in order to achieve their social or environmental goals.
4. Investment time horizon: Value investing typically has a long-term investment horizon, with investors holding their positions for many years. Impact investing can be short- or long-term, depending on the specific investment.
5. Financial returns: Value investing is focused on generating financial returns that are commensurate with the level of risk taken. Impact investing may sacrifice some financial returns in order to achieve social or environmental impact.
6. Measuring success: Value investing measures success based on financial performance, such as earnings and revenue growth. Impact investing measures success based on both financial performance and social or environmental impact.

In conclusion, although value and impact investing have certain parallels, they are essentially dissimilar methods of investment. While impact investing aims to produce both financial returns and good social or environmental impact, value investing is concentrated on generating financial returns by investing in undervalued companies with excellent fundamentals. It ultimately comes down to your personal financial goals and ideals because both strategies have advantages and disadvantages.