Finding a safe investment haven close to home

Think local Investing in your own community is gaining popularity 
in the U.S. and being successfully tried north of the border

Reading Time: 2 minutes

Canadians may not have to face some of the dangers others in the world are dealing with directly, but there’s still good reason to be nervous.

After all, Bernie Madoff drained the accounts of his Canadian holders — including some of our most prominent institutions. If the shenanigans at Jon Corzine’s MF Global or at PFGBest that defrauded customers of their assets didn’t hurt most of us, that’s only because we weren’t dealing with those firms.

Repeated stories of retail investors losing money because of “flash crashes” and high-frequency computer trading haven’t helped. There’s a growing perception that at least some of the international markets are rigged against ordinary investors.

So far Canadian banks, insurance companies and brokerages have been not only sound, but honestly run — something it’s getting harder to say elsewhere.

Still, many Canadians are nervous about the quality of the firms whose shares and bonds are in their pension funds, mutual funds and investment accounts — and about the trustworthiness of people their fund managers and brokers deal with.

And with real estate markets cooling, many investors are wondering where to put their money.

One idea gaining popularity in the U.S. would make a lot of sense here: Investing in your own community.

Here’s how it works. Most public institutions are strapped for cash, such as aging schools with heating, ventilation and cooling (HVAC) systems dating back to the ’60s and ’70s. Replacing those systems would generate significant operating savings, but schoolboards are broke.

So the investor comes along, offers to pay for new HVAC system, and the schoolboard pays back the loan, with interest, over 40 years (the life of the replacement). In effect, this acts like a bond and since the school is a public body, the investment should be safe.

Do it in your 50s, and have a retirement income stream.

It doesn’t have to be a school, of course. It could be other public bodies, such as a charity that owns an aging building.

Another place to invest is with local entrepreneurs, such as a community business association. Or you could do what was done in P.E.I. this year, where the crowd-funding website Kickstarter was used to fund several local projects on the island. Although Kickstarter facilitates investments around the world, locals here used it simply to handle the money.

Their mantra was “Islanders investing in Islanders” — and given that a Kickstarter investment can be very small, on the order of a few dollars, it’s open to the smallest investors.

Why did the people leading this use Kickstarter? To deal with the investor laws that most of our provinces have: An entrepreneur looking for investors typically can only deal with “qualified investors” — people of proven high liquid net worth — unless they are personal friends or family members.

The value of investing locally isn’t just in having a better community. You’re able to keep an eye on things. (An angel investor I know — one of those high net worth types — won’t invest in anything, no matter how good, if it’s more than 30 minutes from his front door so he can easily check out what’s happening.)

We’re very used to the idea that our money has to go into the markets. We’re also aware that there aren’t always enough things in the Canadian markets alone to excite us.

If you’re worried about what’s happening in other countries, you can protect yourself and your assets by putting them to work where you live.

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