Investing in communities

A key component of the new fund is the availability of multi-year awards for those who wish to apply for funding over more than twelve months. Your Practice. Domini Impact Investments. If you choose to open accounts at a community development bank or credit union, you’ll find the interest rates to be comparable to those at traditional banks and credit unions. Impact Investing Definition Impacting investing aims to generate specific beneficial social or environmental effects in addition to financial gains.

Accessibility links

Do you want your investment decisions to have a positive impact? Do you find it difficult to concern yourself with what’s happening in distant countries when you see plenty of problems that need solving in your com,unities neighborhood? If so, community investing might be the solution. In this article, we’ll explain how this type of socially responsible investing works investing in communities how to make it work for you. What Is Community Investing? Community investing CI is a subcategory of socially responsible investing, and it aims to earn returns for investors while contributing to noble causes.

Accessibility links

Community investing refers to direct investments into poor communities via community development banks, credit unions, loan fund and microfinance institutions. Community investing is closely tied to socially responsible investing and focuses on economically improving disadvantaged communities by offering banking services and small loans to fund businesses, non-profit groups and affordable housing initiatives. Community investing can have a real and immediate impact on the well-being of a community by increasing economic activity. Often it provides financial services to communities that have traditionally been underserved. Investments can take the form of cash deposits in community banks, purchasing debt from nonprofit loans funds, and equity investments in real estate. Often these institutions obtain certification as community development financial institutions CDFI. CDFI loan funds typically provide financing that is not available from traditional banks.

Let us inspire you!

Do you want your investment decisions to have a positive impact? Do you find it difficult to concern yourself with what’s happening in distant countries when you see plenty of problems that need solving in your own neighborhood? If so, community investing might be the solution. In this article, we’ll explain how this type of socially responsible investing works and how to make it work for you.

What Is Community Investing in communities Community investing CI is a subcategory of socially responsible investing, and it aims to earn returns for investors while contributing to noble causes. Specifically, CI puts investment dollars to work locally to provide safe and affordable housing, job opportunities, education, healthcare, financial counseling, child care and other essential community services.

It allows you to direct your investment dollars toward a specific community, often your. CI also facilitates investment in underserved commhnities more broadly if there isn’t a specific community you want to focus on. Institutions that provide community investing opportunities help individuals and businesses who otherwise couldn’t obtain financing, and in the long term allow people to help themselves.

According to the Forum for Sustainable and Responsible Investment, community investing is one of the many fast-growing areas of socially responsible investing.

How to Invest Since community investing encompasses a broad range of activities, there are many options for pursuing a community investment strategy. For starters, instead of choosing one ib the usual options for your checking invessting savings accounts, you could keep your money at a community development bank that lends to individuals and businesses that otherwise couldn’t get a loan.

Like traditional banks, community development banks are FDIC insured, but unlike traditional banks, they focus on serving a low- to moderate-income clientele. You can find banks that the U. Investing in agency bonds is another form of community investing. These entities help provide housing to people who otherwise couldn’t afford it. GSE bonds, which help fund Fannie Mae and Freddie Mac, are not government bonds, so they are not backed by the full communitjes and credit of the U.

These GSEs are shareholder-owned corporations, and you should research their bonds and evaluate their credit risk as you would other corporate bonds.

Agency and GSE bonds have inflation risk, like all bonds, and some have call risk. However, they have relatively low credit risk. You’ll earn slightly better returns with these bonds than with Treasuries because of the additional risk, but unlike Treasuries, the interest is not tax deductible.

Ginnie Mae is a government agency, and investments in the agency’s securities do carry the government guarantee and theoretically don’t have xommunities default risk. If you want to invest in Ginnie Mae, you won’t be investing in bonds, however; you’ll actually be investing in mortgage-backed securities inveesting, which in light of the financial crisis should be approached with caution.

To invest in these entities, you can purchase their securities through a brokerage. Rewards Community investing can be very rewarding if everything goes according to plan. You’ll create wealth for yourself from the return on your inveeting, and you’ll create wealth for others by improving their economic opportunities. At its best, CI is like charitable giving, but with the potential for you to get a monetary return.

If your investment loses money, you may get some consolation from deducting your losses on your tax return and knowing you’re not financially worse off than if you had donated the same sum. The other reward from a successful community investment plan is personal.

You get results you can see when you improve the lives of individuals in your community. You may even improve your own experience of living in the community if you’re investing close to home. Drawbacks Community investing also has drawbacks. It can entail higher risk; you’re often investing in people and businesses that traditional lenders think are too risky to lend to.

Furthermore, your additional risk isn’t necessarily compensated with higher returns the way it would be in traditional investments. CI also restricts your investment options, and many community investments are in vehicles that provide low returns, like savings accounts and government bonds. To earn a high enough return to meet your long-term financial needs, you’ll need to broaden your exposure beyond these low-return investments.

You can meet this need by investing in the stocks of companies with a strong community focus or by expanding your parameters to communitise the broader universe of socially responsible investments. Many investors will find that it makes the most financial sense to pursue community investing in only a portion of their portfolios, but that doesn’t mean you have to choose investments that you’re morally opposed to in the remainder of your portfolio.

SEE: Ethical Investing. Community investing is also often more time-consuming than traditional investing. Instead of just looking at risk, potential returns and fees, you also have to take a hard look at whether the investment meets your standards for serving the community.

The Bottom Line While community investing’s goal, like other types of socially responsible investing, is to earn investment returns while imvesting doing good, this isn’t to jn that traditional investment methods don’t also do good.

In fact, there’s plenty of overlap between the two categories. However, if you want to pursue community investing intentionally, take a hard look at your investment options before you dive in to make sure your money will serve your desired purpose.

Real Estate Investing. Home Ownership. Your Money. Personal Finance. Your Practice. Popular Courses. Login Newsletters. Other options for community investing include the following:. Buy real estate in poor communities to provide affordable housing for low-income tenants and to revitalize neglected neighborhoods. Invest directly in community development loan funds or pools.

Invest in socially responsible mutual funds with a community investment focus. Invest directly in municipal bonds in underserved communities to help fund infrastructure, educational facilities, and public goods and services.

Buy stock in publicly traded companies that invest in underserved communities. This strategy is a less direct form of community investing, but it provides an option for investors seeking higher returns than those available from fixed-income community investments. Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Articles. Partner Links. How a Government-Sponsored Enterprise Works A government-sponsored enterprise GSE lnvesting a quasi-governmental entity established by Congress to enhance the flow of credit to specific sectors of the American economy.

These agencies, though privately held, provide public financial services. What’s Required in a Mortgage Application A mortgage application is a document submitted by one or more individuals applying for a mortgage to purchase real estate.

Mortgage Pool A mortgage pool is a group of mortgages held in trust as collateral for the issuance of a mortgage-backed security.

It could provide micro-loans to single parents or former welfare investing in communities wanting to start small businesses. Shareholder Resolutions Votes in What happens to our recyclables now? Home News. Connect With Us Shopping cart Log in. Anyone can invest in mutual funds. Brought to you by Green America and Social knational leaders in advancing socially and environmentally responsible investing SRI. Move forward. Investments in CDBs typically take the form of certificates of deposit or equity.