Friday, September 30, 2011

Local (Financial) Investment

I just finished reading Locavesting: The Revolution in Local Investing and How to Profit From It by Amy Cortese. While not original in thought, this book has the right information to be part of a revolution. It focuses on the idea that if you value more of a return on your investment than dividends, you should look to place your investment money in local opportunities. The book then gives some realistic, and some idealistic suggestions for those opportunities. The layout and format is very useful with full description and examples of the funding options, with a summary at the end of each chapter.

What I appreciated is that it discusses the obvious, CSA (Community Shared Agriculture) where you buy a share of a farm or what not (insert a product for "A") upfront so the producer gets a slug of capital and then you get the product over time. Think of it as pre-buying the commodity.  The book also discusses other mainstream ideas like cooperatives and direct investment by locals into local businesses. The book also showcases some not-so mainstream ideas.

I was interested to read the New Hampshire Community Development Loan Fund used as an example of ways that non-profits can invest in other non-profits. The CDLF works like a CD does at a bank, you place your money in the fund and it is used to finance other investments, and create a revolving loan. As the loan proceeds are paid interest is built up and when the term of the investment is over you get your principle plus interest earned back. What is special about the fund is that it invests the money in non-profits and other low to moderate income based ventures that traditional funding opportunities might not exist for.

Much of the book discusses how financing and investment have become something that is not attainable if you are not on Wall Street. There are various regulatory and risk based variables that are used to discriminate against investment in small business and many of those are variables we contribute to by focusing investment in the established big business stocks.

The book stresses the need to place your money in local banks or credit unions and how these institutions, invest more like the bankers of old, where relationships are valued and the investment isn't just on the financial return of investment.

That is the core idea of the book, that we should look for social and local benefits as well as financial ones from investments. There is value in ensuring that the local businesses can create jobs. This is a huge idea. As I said atop, it isn't new or original, but it is staggering. The data supports ideas about the flow of money and how 64 percent of dollars spent locally stay locally vs 46 percent of big box or national chain dollars. The same is apparent for job creation etc.

I don't think there is a need to point out how this relates locally. We all can grasp that in tough economic times we need to look within to save money, and the idea here is that when you are mindful of the places you spend your money, be mindful about the places you invest it as well. Wouldn't you like to know that you helped keep your local coffee shop open or allowed it to expand as opposed to knowing that you helped the national chain stay open? Just food (or drink) for thought.

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