Local Dollars, Local Sense

* Book: Michael Shuman. Local Dollars, Local Sense. Chelsea Green Publishing, 2012.

a valuable addition to the literature about local investing and community empowerment.

Introduction

Michael Schuman:

"Amer­i­cans’ long-term sav­ings in stocks, bonds, pen­sion, life in­sur­ance, and mu­tual funds total about $30 tril­lion. But not even 1 per­cent of these sav­ings touches local small busi­nesses, the source of half the econ­omy’s jobs and out­put. Is it pos­si­ble to beat Wall Street’s 5 per­cent long-term per­for­mance by in­vest­ing in your com­mu­nity? The an­swer is a re­sound­ing yes!

Co-op mem­bers who lent to the Weaver Street Mar­ket in North Car­olina and to the Se­ward Co-op in Min­neapo­lis earned well over 5 per­cent per year. Many out­side in­vestors who bought pre­ferred shares of the Coulee Re­gion Or­ganic Pro­duc­ers Pool, a co-op of or­ganic farm­ers, are still re­ceiv­ing an an­nual div­i­dend of 6 per­cent. Equal Ex­change has paid a div­i­dend to its pre­ferred share­hold­ers av­er­ag­ing above 5 per­cent for 22 years. In­vestors who par­tic­i­pate in New Mar­kets Tax Cred­its au­to­mat­i­cally get a tax credit equal to 5 per­cent of their cap­i­tal for each of the first three years and 6 per­cent for the next four—even if the in­vest­ment gen­er­ates no real re­turn what­so­ever. Burt Cho­jnowski’s re­turns have been good enough to con­vince out­side in­vestors to put more than $300 mil­lion into his local com­pa­nies and pro­jects over 25 years in Fair­field, Iowa. Most of LION’s deals in Port Townsend, Wash­ing­ton, are pay­ing be­tween 5 and 8 per­cent re­turns per year. Mi­crolen­ders on Prosper.​com are av­er­ag­ing an an­nual re­turn of 10.4 per­cent. Jeff Haug­land has paid the local share­hold­ers of Com­mu­nity Gro­cers in Mount Ayr, Iowa, an an­nual div­i­dend of 5.25 per­cent.

All of these prof­itable ini­tia­tives pro­ceeded within ex­ist­ing se­cu­ri­ties laws. If, how­ever, na­tional or state gov­ern­ments were to im­ple­ment sen­si­ble, sim­ple, zero-cost re­forms, the num­ber, va­ri­ety, and promise of lo­cal-in­vest­ment op­por­tu­ni­ties could ex­pand dra­mat­i­cally. The many ex­am­ples in this book— and the thou­sands of oth­ers out there, some of which may be hap­pen­ing in your com­mu­nity right now—sug­gest that the uni­verse of local in­vest­ment is ex­pand­ing faster than fi­nan­cial as­tronomers like my­self can pos­si­bly keep track of it.

Not every local com­pany, of course, will beat the 5 per­cent rate of re­turn from ex­ist­ing mar­kets. Bet­ting on any one or two busi­nesses, just like bet­ting on any one or two NAS­DAQ stocks, is very risky. No one should read this book as sug­gest­ing that we each should pull all our money out of the stock mar­ket and put it all into our neigh­bor­hood din­ers or book­stores.

As mod­els for local in­vest­ment pro­lif­er­ate, the focus will shift to the qual­ity of each in­vest­ment and the qual­ity of your lo­cal-in­vest­ment port­fo­lio. The coun­try is about to travel up a steep learn­ing curve to dis­cern the best local busi­nesses from the fraud­sters and grifters, and how to build a lo­cal-econ­omy in­fra­struc­ture in our com­mu­ni­ties—re­plete with local pur­chas­ing, en­tre­pre­neur­ship pro­grams, local busi­ness al­liances, and pub­lic pol­icy re­forms—that will in­crease the prob­a­bil­ity of local busi­nesses suc­ceed­ing and local in­vest­ments pay­ing off. One mod­est step might be to move 5 per­cent of your money from Wall Street to Main Street each year. By the time you get to 100 per­cent in twenty years, the na­tion should have a thriv­ing net­work of re­gional stock ex­changes and local mu­tual funds.

But an­other vex­ing ques­tion about local in­vest­ment I puz­zle over is this: Does it make sense to in­vest in any­one else’s busi­ness, bank, pro­ject, or fund until I have thor­oughly in­vested in . . . my­self? Might I get a bet­ter than 5 per­cent an­nual rate of re­turn in­vest­ing in my own bank ac­count, my home, my own en­ergy-ef­fi­ciency mea­sures, and my ed­u­ca­tion? Most of us ul­ti­mately have a sig­nif­i­cant por­tion of our wealth in these in­ti­mately close items. Get­ting these in­vest­ments right might be the sin­gle best way to in­vest lo­cally.

To beat Wall Street, in­vest­ments in your­self must achieve not a 5 per­cent an­nual rate of re­turn but a 7 per­cent rate. That’s be­cause most of the op­tions could not qual­ify for tax-de­ferred IRA or 401(k) in­vest­ments, and the extra 2 per­cent … ap­prox­i­mates the life­time ben­e­fit of tax de­fer­ral.

Re­mark­ably, though, the 7 per­cent goal is achiev­able—and in so many ways that many Amer­i­cans, per­haps most, might never need to think about re­tire­ment ac­counts again." (http://www.nationofchange.org/5-ways-make-your-dollars-make-sense-1329492960)