02 Nov Why It’s Important to Invest in Each Other
I came up with the word “peerfolio” when thinking about how great it would be to have an investment portfolio that primarily consisted of investments in my fellow humans, my peers. That includes options such as buying stock in growing start-ups, participating in consumer or business loans and in real estate investments in my community. A colleague of mine once asked “How different would our world look if half of the investments we made were within 50 miles of where we lived”? I, for one, would look heavier as I would own a piece of my local donut shop (!) but the point is we would most likely have less unemployment, more robust cities and a bigger variety of thriving independent shops and eateries.
There are many reasons why investing locally and in our peers is a good idea. First, small businesses generate half the private economy (they employ half the private workforce and create two out of every three jobs in the U.S.). Local businesses are crucial for tourism, walkable communities, vital downtowns, entrepreneurship, social equality, and of course political participation. As stakeholders in our communities, these small businesses care about the issues facing our neighborhoods and ultimately our well-being.
Last but not least, in conjunction with these strong social returns, we can often earn a more significant financial return. IRS data shows that the net income of sole proprietorships, which most small businesses are (or at least they begin that way) was eleven times greater than that of corporations.
So instead of putting our money into the S&P 500, why not try smaller, growing businesses? Especially if the investment is based on a revenue share or a loan which can generate payments providing periodic cash flow to investors.
An additional benefit of investing locally is we can often see and be involved with the business whether it’s a local craft brewery or bakery or bookstore. We can get to know the proprietors and support their success through frequenting their business. I’ve also seen companies offering appealing perks such as product or service discounts to customers who invest…so get that beer stein ready!
Whether funding a community market, an outdoor recreation company or a boutique hotel, you can also bet that these companies BUY local as well – reaching into their own backyard for their locally grown ingredients or locally crafted supplies and business services. Having these businesses spend money within their own communities fuels the growth of local economies even more.
The traditional stock market is wired against us as smaller investors (ever read Flash Boys?). Imagine the possibilities if we all dedicated even a small portion of our dollars to alternative investments in private ventures instead of into companies chasing profit around the world. Real investments helping our neighbors and families while offering a strong financial return.
Let’s put our money where our lives are!