Can Investing Locally Give Us a Better Return on Our Money?

by Lisa Mastny

Localdollars Localsense

In these unpredictable economic times, many of us lie awake wondering where the best place to put our money is. If we have a little extra to invest, we’re often advised to purchase low-risk bonds, to open a money market account (despite dismal rates of return), or to take a gamble with higher-risk opportunities on Wall Street. But are these really our only options?

What if we could instead take our money and invest it directly in our communities, where we would see the everyday difference our support makes while also getting a healthy monetary return? Sound too good to be true? 

According to a new book by local-economy advocate Michael Shuman, it’s not. In Local Dollars, Local Sense, released in February by the Post Carbon Institute, Shuman argues that not only is it possible to shift your dollars from Wall Street to Main Street, but there are real-life examples of individuals and communities nationwide who are making this very choice.

The best part of it? According to Shuman, people who invest in their communities may even earn higher returns than traditional investors, while gaining the additional reward of supporting their friends, neighbors, and local institutions. Shuman argues that once a full range of factors (such as inflation, hidden fees, and other accounting perversions) is taken into account, historical stock market returns of 7–8 percent in fact work out to more like 3–4 percent. Meanwhile, myriad local investments could simultaneously earn investors a 5 percent-plus return and revitalize our communities. It’s a winning solution for all.

Unfortunately, the current investment reality is far from this. According to Shuman, Americans’ long-term savings in stocks, bonds, mutual funds, pension funds, and life insurance funds total about $30 trillion. But not even 1 percent of these savings touch local small businesses—even though roughly half the jobs and the output in the private economy come from them. 

Most of us are “passive” investors, giving the vast majority of our money to the usual suspects: big corporations and Wall Street. Even those of us who engage in “socially responsible investing” are almost exclusively supporting Fortune 500 companies. The current investment model not only doesn’t benefit local communities, but it has actually neglected them to the point at which many places struggle to retain independent, locally owned businesses that contribute to local vibrancy and so much more.

The Need

To rebuild our communities, we need to invest locally—as governments, as entrepreneurs, and, as Shuman emphasizes, as private individuals. Investing locally means mobilizing capital to support things like schools, hospitals, factories, and homes, as well as local businesses and innovations that are connected to your specific geographical place. Local investments are in stark contrast to the national and global companies with which we have little genuine connection, knowing them only through our mortgages, banking, and the consumer goods we buy. 

The benefits of strong local economies are well documented. As Shuman details in many of his writings, local businesses typically spend more money locally than non-local businesses, feeding the “local multiplier effect” that allows more money to stay in the community to support economic development.

So why aren’t we investing locally? One reason is very practical. Shuman explains that because of outdated institutions and securities laws, it is nearly impossible, and usually very expensive, for “unaccredited investors”—i.e., those earning less than $200,000 a year, or roughly 98 percent of Americans—to invest in any business they want, including a local one. But, as Shuman explains, there are dozens of practical ways to get around this, which he devotes much of the book to describing.

Examples of Local investment Opportunities


Based on the principle of “one person, one vote,” co-ops are usually exempt from securities registration requirements, making it easier for unaccredited investors to launch a co-operative business. And because co-op members typically receive discounts or patronage benefits, they can achieve good rates of return on the investments they make. Preferred shareholders in co-ops can also reap high rewards: Shuman notes that Organic Valley, a producer co-operative owned by organic farmers across the United States, has promised to pay investors annual dividends of 5­–6 percent.

Leveraging local banks and credit unions

Shuman notes that putting our money in local banking institutions, rather than global financial behemoths, “may be the single most important act of localization that any individual or family can make.” Local businesses can then leverage these assets. Equal Exchange, a Boston-based worker-owned company that sells more than $40 million of fair-trade products annually, raises part of its money through a specialized CD option that's offered at a local bank: people who are interested in supporting the company can buy a CD and earn the normal rate of return on it, and the bank will use it as collateral for a low-interest loan to the company. The company also issues stock to preferred shareholders, who earn a steady 5 percent return.

Impact investing

Impact investors seek to create social good or improve the health of the environment, as well as achieve financial returns. Coastal Enterprises, Inc. in Wiscasset, Maine, helps investors channel their money through revolving loan funds, a venture capital fund, and technical assistance programs, which support small-scale fisheries cooperatives and other local projects. The company’s CEI Ventures, Inc. currently offers only accredited investors the opportunity to provide venture capital to up-and-coming companies, but it hopes to soon add unaccredited money into its funds.


By offering advance, discounted sales of its products, a business can often raise needed capital while avoiding the intricacies of securities law. Awaken Café in Oakland, Caifornia, has pre-sold coffee as a way to raise money for a new store. And Claire’s Restaurant in Hardwick, Vermont, was financed by 50 frequent eaters who each bought $1,000 worth of discount meals in advance. It's a classic win-win: buyer-investors are able to support business ventures they believe in while also getting the products they want at a lower cost.

Community business and investment networks

Community groups can actively build relationships among potential investors and local businesses to facilitate one-on-one investment ties. The community organization LION (Local Investment Opportunities Network) in Port Townsend, Washington, helps local investors share and vet interesting local business-funding proposals.

Crowdfunding and other “profit-free” transactions

Shuman explains that funds given with no expectation of a return are not likely to be considered securities. This has opened the door for global microlending vehicles like Kiva, as well as crowdsourcing opportunities like Kickstarter and IndieGoGo, which enable anyone to contribute money online to support a project or business idea. So far, though, few crowdsourcing websites support purely local initiatives. (One promising locally oriented option, launched recently, is SmallKnot.)

Low-cost direct public offerings

Through direct public offerings, a local business can “go public on the cheap” by selling its securities to large numbers of unaccredited investors. One example of a successful DPO is the food company Annie’s Homegrown, which offered $6 stock shares to all purchasers of its foods and was able to raise enough capital to expand its manufacturing capacity. Shuman’s own group, Cutting Edge Capital, helps businesses lower the costs of direct public offerings through easy-to-use forms and other tools.

Local exchanges

Although few currently exist, local stock markets can serve as spaces where unaccredited investors can trade securities in established local businesses. A national model is Mission Markets, a website that contains several platforms on which users can find and trade all kinds of securities related to environmentally and socially conscious businesses. Examples of pilot local or regional efforts include the experimental LanX local exchange in Lancaster, Pennsylvania, and UNIEX, a website that lists public companies and aims to enable users to buy and sell shares directly with one another.

Local investment clubs

Why not combine your investments with others for greater impact? Participants in local investment clubs are allowed to pool their money and invest in any securities they wish, then split up the profits—provided that every member is actively involved in every investment decision of the group. In Maine, members of the No Small Potatoes Investment Club chip in a minimum of $5,000 each, and the pooled funds are used to provide micro-loans to local farmers that need them.

"Slow Money" investing

The San Francisco-based group Slow Money provides tools for people to invest directly in individual small food enterprises where they live. The group is also exploring ways to expand lending from local banks and credit unions to local business, including through the use of municipal bonds for collateral.

In addition to these community-oriented investments, Shuman guides us through the lucrative opportunities that we have to "invest locally in ourselves"—by paying off debt, investing in our own homes, making energy efficiency improvements, and contributing to self-directed IRAs. This can bring financial reward that far outweighs the benefits of external investments. Shuman goes so far as to claim that, “For many Americans, perhaps even most, these opportunities are so big and compelling that they might never need to think about their IRAs or retirement funds again.”

The Upshot

It's likely that not everyone, or even most people, are going to jump immediately into the investment channels that Shuman presents. Indeed, one of the takeaways of the book is that while there are many exciting investment alternatives out there, there are also real obstacles that are preventing people from moving their money to Main Street. Many of these are legal, as Shuman meticulously outlines, but many are also psychological, stemming from a fear of taking a less-traveled path that's potentially risky (though likely no riskier than Wall Street!). 

Ultimately, the real value of Local Dollars, Local Sense is in the possibilities it presents, along with the real-world examples that could inspire the movement of trillions of dollars of investment capital away from Wall Street to small, local businesses.

Lisa Mastny is Director of Communications and Online Media at New Dream.