In Investing for Real People: Three Ways to Improve Your Returns (written for Tribe Impact Capital) I discuss why the concept of ‘maximising risk-adjusted returns’ needs to be broadened to include more than just financial returns if we are all to get the most out of our investing.
Conventional ‘wisdom’ tells us that investing is all about getting the best risk-adjusted returns: aiming for the best possible returns for the level of risk we’re willing and able to take. Succeed at this and we’ve done all we need to find the best portfolio.
This isn’t a bad starting point. And taking on more risk without expecting anything in return is not a recipe for investment success. However, as a description of what your best portfolio looks like, it is woefully incomplete.
There are three broad reasons for this that we will examine in turn:
- Financial returns aren’t the only thing investors value.
- Financial returns aren’t just a means, they can be an end.
- Investors need to feel comfortable with their portfolio if they are to succeed.
Each of these reasons offers compelling reasons for why, for most investors, incorporating social and environmental impact in your investing is not just an optional extra, but the most sensible way of approaching investing at all.
See Investing for Real People: Three Ways to Improve Your Returns for the full article.