Financial products that aid the poor and beat the market
For two years now, savers have had a tough slog. Rock-bottom interest rates have meant nominal returns for anyone holding extra cash. But those who believe their spare dough ought to do some good in the world have actually done better than their peers 鈥� a lot better in some cases. Low-risk, short-term commitments 鈥� supporting high-minded projects from affordable housing in the United States to microenterprise abroad 鈥� are generating enviable returns, sometimes as high as 6 percent.
鈥淚n these low interest-rate environments, there is an opportunity for people to get average or better than average returns in some socially responsible investment choices,鈥� said Doug Wheat, a financial planner at Family Wealth Management in Holyoke, Mass. 鈥淚n high-rate environments, [a 3 percent return] seems low. But in low-rate environments, that seems pretty good.鈥�
A combination of factors, including a new microfinance model and minimal competition from major banks, is enabling mission-focused institutions to offer superior deals and become cash magnets. In the process, they鈥檙e attracting the likes of Richard Frisbie, a Purdue University administrator with a penchant for strong rates of return and a low tolerance for risk.
Mr. Frisbie earns 3 percent on most of his 17 Calvert Foundation community investment notes, which he bought through MicroPlace, a business unit of eBay. Each month he commits new funds, usually for less than one year, thus ensuring a steady availability of cash. He likes the way his money supports artisans and other
microentrepreneurs in developing nations. And he doesn鈥檛 worry about them defaulting. Even though MicroPlace investments aren鈥檛 insured, the institutions that broker his debt stand behind their borrowers and have a 100 percent repayment history through MicroPlace.
鈥淟enders should be able to have a portfolio that鈥檚 self-sustainable, meaning that you don鈥檛 lose money,鈥� Frisbie said. 鈥淚f it鈥檚 financially sustainable for individual lenders, then those people will be more likely to invest more and the [micro-lending] model can grow.鈥�
MicroPlace lets investors with as little as $20 support certain types of microentrepreneurs, such as small businesses in Texas or ecofriendly coffee growers in Costa Rica. Rates of return can run as high as 6 percent since partner organizations can sometimes lend the funds overseas at even higher rates. Dozens of MicroPlace investments pay 3 percent on commitments of two years or less. By contrast, people seeking a 3 percent return from an ordinary bank CD would in most cases need to tie up their funds for four or five years.
鈥淲e have empirical evidence that investors are interested in these investments because of the financial return,鈥� wrote Ashwini Narayanan, general manager for MicroPlace, in an e-mail. Even so, she added, most MicroPlace investors also want to help the world鈥檚 poor.
In this climate of low interest rates, financial advisers are finding that many of the best options are those that directly benefit the public good. Mr. Wheat recommends some buy into emerging market bond funds, which finance public projects abroad and help diversify a portfolio. Stuart Speer, a financial planner with Heritage Advisors in Overland Park, Kan., touts general obligation municipal bonds 鈥� which pay for roads, bridges, and other public goods 鈥� as nonrisky instruments with yields in the range of 4 percent and potential to climb in value.
In Louisville, Ky., financial planner Andy Loving has found that enabling clients to support meaningful causes is sometimes also the best way for them to achieve short-term financial goals. Last summer, for example, a grandmother asked him where she could safely park her grandson鈥檚 2010-11 college tuition ($8,000) for one year. He recommended a one-year Calvert Foundation community investment note, which paid 3 percent and gave her options to steer funds toward environmental, antipoverty, or regional initiatives of nongovernmental organizations.
鈥淥ver the course of the last six months to a year, I鈥檝e put about maybe $400,000 of clients鈥� money into those [Calvert Foundation] notes because they were the best deal around for short-term money,鈥� said Mr. Loving, president of Just Money Advisors in Louisville.
In banking, consumers are finding some of the best rates are available from mission-driven community banks. Chicago-based ShoreBank, which helps at-risk homeowners secure fixed-rate mortgages, has seen assets in its online savings account program swell from $30 million in December 2008 to $265 million a year later.
Last month, the account was paying 1.95 percent, or 35 basis points more than the top online savings rate listed at bankrate.com.
Seeking top returns through socially responsible vehicles can sometimes mean overcoming obstacles and inconveniences. To buy a Calvert Foundation community investment note through a brokerage account and have it appear on a brokerage statement, one needs to invest at least $1,000. Wheat said individual investors sometimes buy these notes by calling the bond desk at a major brokerage, but the process may 鈥渞equire a little hand-holding鈥� since investors need to learn a protocol.
鈥淚t鈥檚 not hard,鈥� Wheat said. 鈥淏ut it鈥檚 not like buying a mutual fund. You can鈥檛 just do it online by choosing from a drop-down menu or typing in a ticker symbol.鈥�
Still, many are finding the leap to higher returns to be quite easy. Howard Goldberg, a Chicago sales representative for information-technology products, had never used socially responsible investment products. But market-topping rates, coupled with the idea of helping neighbors in a foreclosure crisis, convinced him to move a large portion of his funds to ShoreBank last year.
鈥淵ou think you can always get the best returns from the biggest banks, and that鈥檚 the only place to put your money,鈥� Mr. Goldberg says. 鈥淏ut there are alternatives out there that are just as good, in terms of investing money. And in this case, [the alternative] was even better.鈥�
