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A while ago, I was telling someone how I invested in an organization that offers micro credit to new entrepreneurs or small businesses, often based in third world countries. These starting companies either lack access to mainstream bank funding, are considered too high of a risk, or are being developed in countries with an unstable political climate or society.

One of the responses I got was "Invested? That means you want to get a profit out of it too? You should just give your money to support them, if you care about the cause.", which I found rather bizarre. I wasn't in the mood to discuss it any further at the time, but I've been thinking about it nevertheless.

Let's see what the pro's and con's of a couple of options are, shall we?

Option 1 : put the same amount in a savings account.
Option 2 : invest the same amount into different mainstream stocks/stock market
Option 3 : invest the same amount in this micro credit organization
Option 4 : donate the same amount to a non-profit organization

Option 1
Pro : 1.85% gain/year (average inflation 2013 : 1.13%.) Net result : +0.72%/year
Pro : money available at all times (though that would severely impact yearly return)
Pro : rather safe, probably no risk for losses
Con : bank uses money to invest in various stocks and trades, of which some are certainly unethical.

Option 2
Pro : higher gains possible, the sky is the limit
Cons : 100% loss is absolutely possible
Cons : Time needed for research, needs regular fine tuning and follow up
Cons : Possible unethical investment if incorrectly researched, or hunting for highest ROI

Option 3
Pro : Invest in ethical organization and funding of those who need it most
Pro : Organization which has been in business for 20 years, of which the last 16 years with positive returns
Pro : yearly return of 3.35% to 4% (based on last 5 years, no guarantees). Net result : +2.22%/year (taking inflation rate into account)
Pro : one time tax benefit of 5% on invested amount
Pro : returns allow for other investments to be done or own life to be improved
Cons : 0%/year return is possible
Cons : 100% loss is possible, though highly unlikely
Cons : stock can only be sold first 6 months of year (less liquidity)

Option 4
Pro : Invest in ethical organization and funding of those who need it most
Cons : amount is no longer available for other investments
Cons : 100% loss is implied (it's a gift)
Cons : organization needs not "answer" to stock holders regarding projects and attribution of funds

Hence, why I decided to "invest" instead of making a gift. Agree? Don't agree? Feel free to let me know, I may have missed some valuable insights or points. I'd be happy to hear about them.

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This page contains a single entry by ServMe published on December 26, 2013 11:56 AM.

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