Summary: Now, everyone can support small businesses, not just by shopping but by investing. Even small investments can bring a reasonable return while helping the economic recovery.
There is a disconnect between Main Street and Wall Street. In the wake of the coronavirus pandemic, small businesses and average Americans are suffering economically. Yet high-net-worth and institutional investors, and global corporations seem to be doing just fine.
The coronavirus has taken hundreds of thousands of lives, tens of millions of people have lost their jobs, and millions of businesses have temporarily closed their doors, with many doing so for good. Yet, Wall Street continues to chug along.
“When we say the market, it's not a reflection of the strength of the economy," said Stacey Cunningham, president at NYSE, in a Yahoo Finance interview. "It's a reflection of the public sentiment of the stocks that were in that index that we're looking at."
The truth is that global companies that are publicly traded operate very differently than small businesses. Most importantly, they have access to low-cost capital by selling their stock.
Big swings in stock market prices could persist. It's not just the Covid-19 crisis making the market turbulent; it’s computerized trading. A growing number of investors use algorithms to make investment decisions and those decisions are made at lightning speed, causing price moves within seconds that are difficult for mere humans to track. Navigating through market ups and downs during a volatile period can be tricky. You can ride out market volatility in the long run, but, in the short term, you need some stability and liquidity. Whether you are an average Jane or John Doe or wealthy — everyone needs to have money for unexpected expenses.
High-yield savings accounts may sound like a great idea, but their interest rates are less than 1%. You want an investment vehicle that provides not just a steady return but delivers a reasonable rate of return — one from which you can make withdrawals without paying fees and penalties. You may also want an investment vehicle that aligns with your values.
Small businesses are the lifeblood of the US economy. Yet despite being critical drivers of innovation, job creation, and competition, they make up a smaller share of US output than ever before. This trend is likely to continue during and after the coronavirus pandemic. According to the U.S. Small Business Administration Office of Advocacy, small businesses created $5.9 trillion, or 43.5%, of the $13.6 trillion private non-farm US economy in 2014 falling from 48.0% in 1998. During and immediately after both the 2001 and 2008 recessions, large businesses recovered more quickly than small. Small businesses lost the most ground in arts, entertainment, and recreation; professional and scientific services; and wholesale and retail trade sectors.
Fortunately, taking advantage of relatively new laws, some financial services companies have developed ways for anybody — not just the wealthy — to invest in small businesses. Now, community businesses can access growth capital and small investors can get a good return, even if they only have $10 to invest.
Investing in a well-managed bond portfolio that provides loans to small businesses can align your values with making money. A fixed-interest bond, like Worthy that invests in quality companies — those collateralizing their loans with assets of greater value than the loan amount — minimize the risk of the investment and generate a 5% return. When you need to withdraw money, you can do so without penalty or fees.
With all the problems small businesses have faced during the pandemic, this good news is long overdue.