Local investing has become an emerging trend for investors who want to make an impact and see the fruits of their capital closer to home. With the rise of online investing platforms and crowdfunding, investors now have more options to put their money into local businesses, real estate developments, infrastructure projects, and more. Investing locally provides not just financial returns but also social and communal benefits. However, it requires deeper research and relationship building between investors and local partners. In this article, we will explore the rationale, benefits, and best practices of local investing.
The Growing Popularity of Local Investing
The popularity of local investing has grown for several key reasons. First, there is increasing demand from investors, especially millennials, to make a positive local impact alongside earning investment returns. Second, technology advancements make it easier than ever for individual investors to find and vet local opportunities. Crowdfunding platforms provide direct online access to local entrepreneurs, while data analytics help analyze hyper-local economic trends. Third, in the wake of the COVID-19 pandemic, many communities aim to rebuild more sustainably by mobilizing local capital. Overall, local investing aligns with rising ESG investing values of creating shared prosperity while also spreading out risk geographically.
Unique Benefits of Investing Locally
Local investing provides several unique advantages both for investors and local communities. For investors, it allows closer oversight of investments and engagement with stakeholders. By investing in their own communities, investors can see the tangible outcomes and impact. Local investments also enable investors to leverage their personal knowledge of and networks in the local area. For local communities, influxes of capital from local investors can fund growth in areas aligned with local needs. Hyper-local investments also have embedded stakeholders who are less likely to relocate than distant corporations.
Challenges and Risks of Local Investing
However, local investing also comes with distinct challenges and risks. A major issue is scale – most local projects are too small for major institutional investors. Local opportunities may also lack exposure and rarely have credit ratings. For individual investors, identifying viable projects requires extensive local connections and due diligence. Liquidity can be limited as exit options are constrained geographically. There are also risks of over-concentrated exposure to local economic cycles.
Tips for Investing Locally
For those interested in local investing, several best practices are recommended. First, investors should screen opportunities using rigorous selection criteria based on skills, experience and risk tolerance. It is vital to conduct thorough due diligence and risk assessment. Second, investors should start small and maintain diversification across sectors, projects and partners. Third, look for opportunities to syndicate with other local investors to share resources, expertise and risk. Fourth, take an active role through oversight, mentoring and networking. Finally, focus on long-term outcomes over short-term gains.
Local investing provides meaningful opportunities to channel capital into communal growth and prosperity. With careful selection, diligent oversight, portfolio diversification and active engagement, local investors can make valuable financial and social impacts in their communities.