Invest closer to home

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

Bruce A. Stewart, Guest Columnist

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 “flash crashes” and high-frequency trading by computers causing retail customers to lose money to the players who can afford such techniques haven’t helped. There’s a growing perception that at least some of the international markets are rigged against ordinary investors.

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

Still, there’s many Canadians who are nervous, both about the quality of the firms whose shares and bonds are in their pension funds, their mutual funds and their own investment accounts, and about the intermediaries in the financial system that those fund managers and brokers depend on.

With the recent mortgage rule changes introduced, too, real estate markets look less enticing. What’s a Canadian with money to invest to do?

One idea that’s been popular in parts of the United States would make a lot of sense here —investing in your own community.

Here’s how it works. Most public institutions are strapped for cash. A school, for instance, that was built in the 1960s or early 1970s probably still has its original heating, ventilation and cooling system (HVAC). The school board has no money to replace it, but if they did, they’d make significant savings on the cost of operating the new system.

So the investor comes and does a deal with the school board. They’ll invest their capital in the new HVAC system. The school board will pay them back over 40 years (the life of the replacement) plus interest. In effect, this acts like a bond.

The school has the new system and lower operating costs. The board didn’t have to front the money. The investor, meanwhile, knows that as a public body their money is safe, as is the return.

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

It doesn’t have to be a school, of course. Charities that own their own building could use the same approach: any public service that has almost all its money tied up in operating expenses and aging physical assets is a good place to invest.

Another place to invest is with local entrepreneurs.

You could go to your community association to meet some of your local merchants — their business improvement area group is usually tied in there — or you could do what was done in Prince Edward Island this year.

There, the crowd-funding website Kickstarter was used to fund several projects on the island. Although Kickstarter amasses small investments from anywhere on the globe to any project you choose to apply your funds to on the planet, the locals used it simply to handle the money.

Their mantra was “Islanders investing in Islanders” and given that a Kickstarter investment can be small, on the order of a few dollars, it’s a path open to children and those without much money just as much as those with hundreds of thousands to spend.

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. He wants to know what’s happening, and he knows that if it’s not close, he’ll not keep a good eye on it.)

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.

Troy Media columnist Bruce A. Stewart is a Toronto-based management consultant.