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Put Your Money Where Your Life Is: 12 Ways to Invest Locally 

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There are at least a dozen ways to invest locally. If we assume that Wall Street’s benchmark return is 5% per year-a generous assumption given that the market is down this year by 20%-most local investment options are likely to deliver a better return. What are they?

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1. Invest in Yourself by Paying Off Credit Cards

Credit cards are public enemy number one. They addict many of us, crack-like, to purchasing what we can’t afford, and they cause major leaks in your local economy. The 2-3% fee that goes to the home office of Visa, Mastercard, Discover, or American Express drains money from local businesses, which cover the costs by raising prices.

Even worse is the interest. If you’re currently paying 20% on a credit card, every dollar you put toward your credit card debt (versus the stock market), will generate a net return of 15% per year.

2. Invest in Your Kids' Future

Cutting up your kids’ credit cards is part of option number one, but I’m listing it separately to make a point: what’s good for the goose is good for the gander and everyone who flocks around you.

Let’s say your daughter has racked up $20,000 in credit card debt. Make her a deal: you’ll pay it off, and she’ll pay you the $20,000 at an interest rate of 5%. You get a great new income source, and your daughter gets a new lease on life.

3. Invest in a Home

For most Americans, retirement wealth comes in one form: home equity. As long as Uncle Sam continues to provide tax deductions for your home’s mortgage interest—one of the biggest subsidies the federal government offers—being a homeowner makes sense. In most foreseeable scenarios, investing in a home pays better than Wall Street.

4. Invest in Paying Down Your Mortgage Faster

Suppose you already have a mortgage, no credit card debt, and extra money to invest. Might it make sense to invest those dollars in Wall Street? Probably not. Under most reasonable assumptions, you’ll get a higher return if you use that money to pay down your mortgage faster. The tax advantages of your home, even with a smaller mortgage, will beat your long-term gains from Wall Street.

5. Invest in Cutting Your Daily Bills

If you look at your family’s expenditures beyond housing, you’ll see plenty of local investment opportunities.

Consider your utility bill. According to the 2016 Consumer Expenditure Survey, the typical family spends $3,884 per year on utilities, including electricity, gas, sewage, and garbage pickup. Would investing in energy efficiency measures beat Wall Street’s returns? Absolutely. The American Council for an Energy-Efficient Economy argues that “light” improvements in a home’s energy efficiency can deliver a “whopping 18.5% return annually.”

6. Invest in a Co-op

For many years, consumer cooperatives (known as “co-ops”) presented one of the few ways grassroots investors could invest locally.

A shining example is the Central Co-op in Seattle, a grocery business with 14,600 members who each paid $100 to join. In 2015, sales exceeded $24 million, and $124,610 was distributed to member-owners. Each member received $8.54, an 8.5% return on the $100 membership—significantly better than Wall Street’s 5%.

7. Invest in Your Favorite Local Business

Thanks to the JOBS Act, any company can now raise up to $1,070,000 relatively easily and inexpensively, from any investor (including you), using one of three dozen federally licensed online portals.

According to recent assessments, between 2017 and 2018, 680 companies raised $109 million from 147,448 investors. Six in 10 companies that tried crowdfunding succeeded, with an average raise of $270,966. Who were the most successful entrepreneurs? Women and people of color.

8. Invest in Your Favorite Nonprofit

Don’t forget that businesses include nonprofits. Bellweather Housing, a nonprofit based in Seattle, recently turned to crowdfunding to build 750 affordable apartments in a region known for skyrocketing property values. Bellweather had already lined up substantial funding for this project from banks, social impact investors, and various governmental agencies, so the crowdfunding fills a modest gap. Every grassroots dollar invested effectively unlocks $29 in capital from these sources.

9. Invest in Local Real Estate

One surprise from the short history of legalized federal crowdfunding is that more investors are shifting their investments to land, buildings, and housing.

SmallChange, for example, currently offers opportunities to get involved with warehouse redevelopment in Philadelphia and affordable housing in Chicago’s South Side. Very few developers are aware of these options, so you might encourage those in your community to open up projects for, say, affordable housing to local investors.

10. Invest in Local Government Projects

Interested in investing in local roads, bridges, ports, or perhaps your city’s high-speed internet network? Consider investing in municipal bonds.

In 2015, a company called Neighborly introduced “civic microbonds.” It worked with cities, especially smaller ones, to help them issue bonds that could be marketed directly to residents. If your city wanted to upgrade the zoo, for example, it could issue Zoo Bonds for resident purchase. Neighborly has recently shifted its focus, but I suspect that other competitors will soon enter this space.

11. Invest in Local Investment Funds

Most of us don’t have the time or expertise to find and evaluate one-off investments. That’s why we typically rely on pools of capital, where someone else—a fund manager—is doing all the homework. A pool of investments provides diversification, which lowers the risk of losing money.

Local investment funds do just that. For example, if you live in western Massachusetts, you might think about investing in PVGrows Investment Fund. Since 2015, it has raised $2 million and provided loans to 35 local food businesses.

12. Invest in Your Local Bank or Credit Union

If you can’t find viable local investments, your last resort—one that’s almost always available—is to put your money in a local bank or credit union. Money deposited here is much more likely to be loaned to local businesses. That’s what recently motivated the cities of Phoenix and Tucson to move their money into local banks, with the explicit agreement that the funds be used to support community business.

The bottom line: If you want to beat Wall Street’s 5% return, you have plenty of options.

The best bets are those you control, such as investments in yourself, your kids, and your neighbors. But if you shop around, you should be able to find local co-ops, businesses, nonprofits, real estate projects, municipal bonds, and investment funds that can potentially match Wall Street’s returns.

The only local investment that guarantees a lower return is leaving your money in a local bank or credit union. If you’re risk-averse or can’t find other local opportunities, this should be your default. Your money can then sit, safe and insured, until a better use for it comes around.

About the Author

Michael H. Shuman is an economist, attorney, author, entrepreneur, and leading visionary on community economics. He is the director of local economy programs for Neighborhood Associates Corporation, a nonprofit affordable housing company, and an adjunct instructor at Bard College's business school in New York City. His new book is Put Your Money Where Your Life Is: How to Invest Locally Using Self-Directed IRAs and Solo 401(k)s. Learn more at michaelhshuman.com.