From MICHAEL SHUMAN
Even though these are tough times for tens of millions of Americans, there’s reason for hope. That’s the message of my new book from Chelsea Green, Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity, which showcases dozens of ways individuals, businesses and communities are reinvesting their money locally and creating new jobs. To give you a little taste of what’s in the book, let me share my Top 10 Reasons for Optimism.
10. Wall Street’s Decline – Fortune 500 companies have long enjoyed an unnatural competitive advantage as all of us have unquestioningly forked over some $30 trillion of our retirement funds into their stocks and bonds. This lemming behavior is now coming to a close. Occupy Wall Street has been so effective that even Newt Gingrich is questioning our fealty to “vulture capitalism.” My book documents that the long-term historic rate of return for U.S. stocks has been an astonishing 2.6% per year. Against that record, all kinds of many local investment opportunities seem fabulous!
9. Main Street’s Rise – Evidence continues to mount that local small businesses are the best job producers in the U.S. economy, at least as profitable as their global competitors, and becoming increasingly competitive (thanks in part to groups like BALLE). Local investment can pay off, big time, if we can figure out how to create, pool, trade and evaluate local “securities” more efficiently.
8. The Crowdfunding Revolution – The bad news is that archaic securities laws have made it impossibly expensive for the 99% of us who are “unaccredited” to put money into the 99% of businesses that small. The good news is that a remarkable coalition led by Tea Party Republicans and Occupy Democrats, and supported by President Obama, is on the verge of overhauling these regulations. Even if the weakest of these legislative alternatives are passed, local businesses will be soon be able to take small investments ($100-1,000) from millions of unaccredited investors with little legal cost.
7. Cookie-Cutting Offerings – If crowdfunding reform stumbles, the revolution will still happen. Companies like Cutting Edge Capital are designing DIY websites so that you can go through the legal hoops to sell stock within one state at a tiny fraction of the previous cost. For example, my colleague Jenny Kassan recently helped Workers Diner, based in New York City, do an affordable stock sale to raise capital from its employees, customers and neighbors.
6. Better Understood Loopholes – Not every kind of investment requires a securities filing. Some companies seeking local loans, like Equal Exchange, have partnered with their banks to create specialized CDs that allow their unaccredited depositors to invest. Cooperatives have long borrowed from their members, with many delivering annual rates of return over 5%. Awaken Café in Oakland raised tens of thousands in capital from its customers by preselling coffee (offering $1,200 advance purchases for $1,000).
5. Small Town Initiative – Communities with fewer than 10,000 people have proven that local investment can be a successful economic development tool. The Local Investment Opportunities Network (LION) of Port Townsend, Washington, has woven a network of “preexisting relationships” among dozens of businesses and investors, facilitating $2 million of investment since 2008. Fairfield, Iowa, has mobilized about $300 million over 25 years into so many startups that it’s known as Silicorn Valley.
4. Community Pools – While securities laws have made it difficult and expensive for unaccredited investors to participate in diversified local investment funds, there are exceptions. Innovative revolving loan funds for local business are open to unaccredited investors in New Hampshire, North Carolina and Ohio. A terrific investment club in Maine affiliated with Slow Money, called No Small Pototoes, allows unaccredited investors to participate.
3. Local Stock Exchanges – In the next few years, perhaps even sooner, unaccredited investors will be able to buy and sell shares of local companies on electronic exchanges. Early prototypes can now be seen in the platforms of Mission Markets of New York and the LanX of Lancaster, Pennsylvania. Once shares of local companies have some liquidity, it will be possible to assemble diversified portfolios, and mutual and pension funds might finally be convinced to begin investing locally.
2. Self-Directed IRAs – If you want to invest your retirement funds in these options above right now, there’s no need to wait. For a fee in the neighborhood of $100-200 per year, you can hire a custodian to oversee your IRA and designate almost any local investment opportunity imaginable, including municipal bonds and local real estate. Alternatives Credit Union in Ithaca, New York is exploring how to facilitate such investments by its members.
1. Self-Investment Opportunities – Perhaps the most intriguing, readily available and safe local investment opportunity is to invest in yourself. Buying a home, condo or co-op house you can afford generates a better return than Wall Street. So does paying down your mortgage faster. Or investing in energy efficiency in your home or a wind machine for your subdivision. In fact, for most Americans, the high-return opportunities for investing in oneself are so many that they perhaps should stop investing in IRAs and 401(k)s altogether.
If you’re interested in learning more about these ideas, here are four things you can do:
- Read Local Dollars, Local Sense
- Attend BALLE’s monthly webinars on community capital, which have featured many of the projects I wrote about.
- Check out future blog posts I’ll post here and on the Post-Carbon Institute’s site.
- Consider partnering with me to hold an all-day workshop in your community on “Everything You Wanted to Know About Local Investment” (please email me if you’re interested at shuman[at]igc.org).