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Innovative Philanthropic Planning with Impact Investing

January 23, 2014

We recently hosted an event in our Boulder office with a local impact investing group called Impact Angels. Many in the room were interested in learning not only about this innovative form of philanthropic giving but also about the key considerations before embarking on impact investing.

Although not entirely new to the philanthropic scene, impact investing has recently gained a lot of momentum. This type of investing supports organizations that are committed to finding a market-based solution to social problems, such as a company selling healthy meals in a food dessert.

As our Director of Philanthropic Services, Alexis Boian, explained, “Philanthropic dollars can only go so far. When you put money towards a problem, you eventually need to generate a return to be sustainable. That’s what these social enterprises are doing.”

Rather than engage in traditional checkbook philanthropy, social enterprise aims for a return on investment and a social benefit. For many philanthropists, impact investing offers a creative way to meet personal investment and charitable goals, and it is especially popular with the next generation of philanthropists.

As with any piece of your portfolio, there are many considerations to make before engaging with impact investing. As a first step, take stock of your financial situation. Before making any investments, it’s critical to know what return you need. As with any new company, investing in new social enterprises comes with a certain degree of risk, so it’s important to understand your appetite for risk.

Creating a balance is key. As an impact investor, you will want to sit down with your advisors to discuss how best to allocate your investments, diversify your risk, identify what you need to generate from your portfolios to feel secure, and determine the duration of time that you can invest.

After that, you can focus on issues that are most important to you. You may already know what social issues you want to affect, but working with a philanthropic advisor can also help align your goals, objectives, and success measures.

Further, just as with philanthropic donations, there are tax considerations for your impact investments. You are probably familiar with deductions and write-offs from traditional philanthropy, but impact investing adds another element to your tax strategy.

With successful impact investments, you may be able to roll over your gains into more impact investments, but you may have more difficulty in harvesting losses associated with these investments. Moreover, some states offer benefits if you fund certain types of organizations. Your tax professional can help you through these decisions; however, it is important to involve them early in the process.

By working with your team of advisors, you can create a strategy around impact investing that will help  your personal, business, and philanthropic goals have the best chance for success.

To learn more about innovative solutions that are available through social enterprises or to discuss other creative solutions to meet your charitable goals, contact Alexis Boian, director of philanthropic services, at Alexis.Boian@myfw.com.

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