— Long fearful of the stock market, black Americans
generally have stayed clear of stocks and mutual funds
for generations, and consequently many with solid
incomes have lagged far behind whites in accumulating
the trend is starting to turn, with 401(k) plans making
blacks less reluctant than past generations about
investing, a national study by Chicago-based Ariel
Investments shows. And if the trend continues, black
Americans will start to ease the massive wealth
inequality that exists between black and white
Americans, said Mellody Hobson, Ariel’s president.
about 67 percent of African-Americans with incomes of at
least $50,000 have money invested in stocks or stock
mutual funds. That compares with 60 percent in 2010 and
57 percent in 1998, the first year that Ariel started
doing national surveys to compare investing attitudes
and behavior of the races.
half of African-American investors surveyed by Ariel
said workplace plans were the most important reason for
becoming an investor. During the last few years,
employers have been enrolling their employees
automatically in 401(k) plans without seeking permission
first. As a result, employees have ended up with stock
and bond investments that have been growing during the
bull market that began in 2009.
1998, 81 percent of whites were investing in the stock
market. Now 86 percent of whites with incomes of at
least $50,000 have stock or stock fund investments —
the highest level Ariel has ever found.
white and black Americans shied away from the stock
market after the 49 percent crash in 2000-2001 and the
57 percent crash in late 2007 to early 2009, according
to Ariel surveys.
2000 crash came after a euphoria about the stock market
and tremendous hype over technology stocks that turned
out to be misleading. Investing by blacks had hit its
highest level before that crash scared away investors.
At the peak, 74 percent of blacks had stock investments
either directly or through mutual funds, according to an
Ariel survey from 2002. After the scary decline, black
involvement fell to 61 percent, and after the housing
crisis and recession, participation by blacks in the
stock market fell to 57 percent.
lowest level for whites during the disappointing period
was 76 percent.
question not answered by the Ariel survey is what will
happen if the stock market falls hard again. The
interviews for the survey were done last summer, before
the recent stock market slump. In January, the Dow Jones
industrial average declined 5.5 percent.
said she was encouraged by the optimism the survey found
among blacks and sees it as a potential opening to build
more investing behavior among African-Americans.
Although only 50 percent of whites are optimistic about
the economy, about 75 percent of blacks said they feel
hopeful about the economy, and 65 percent of blacks
thought the economy had either recovered from the
recession or was on its way to a full recovery.
were hit hardest of any racial group in the 2008
financial crisis and recession and did not bounce back
like whites, in part because the primary source of
wealth for blacks was their homes and not the stock
market, according to research by St. Louis Federal
Reserve economist William Emmons.
early 2009, the stock market climbed more than 150
percent, restoring wealth to people with those
investments. Many blacks had trouble recovering because
they had little equity in their homes, lost jobs, and
could not take advantage of low interest rates to
refinance, said Emmons.
2014, he found that the median Hispanic and black wealth
levels were about 90 percent lower than median white
wealth even though income levels were only 40 percent
lower. That suggested the investment choices played some
role in the difference.
larger wealth gap could be due to Hispanics and blacks
investing in low-return assets like housing, as well as
to borrowing at high interest rates," he said.
Historically, he noted, homes appreciate at close to the
rate of inflation while stocks — despite scary periods
of decline known as bear markets — have averaged much
stronger returns. Since 1926, the average annual return
has been about 10 percent.
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to the housing crash, Ariel surveys showed
African-Americans were strong believers in housing
wealth. They saw homes as stable investments. But that
has changed dramatically. In 2004, 61 percent said real
estate was the "best overall investment." But
that fell to 30 percent in 2010 and was only 37 percent
in Ariel’s most recent survey.
the percentage of blacks saying the stock market is the
"best overall investment" jumped from 28
percent in 2004 to 41 percent in the recent survey.
continue to be more leery of the stock market than
whites. When Ariel asked people who weren’t investing
in the stock market to cite a reason, 56 percent of
blacks and 53 percent of whites said it was too risky.
Having enough money to invest was secondary, with only
44 percent of blacks saying that was the reason for not
are more likely than whites to say it’s important to
get the timing right for stock market investing,
although financial advisers say the key is to combine
stocks and bonds and invest a little at a time
continually. They say guessing when stocks will climb or
fall is impossible even for the best and brightest pros.
than half of black investors said workplace plans were
the most important motivator for becoming an investor.
after going through the financial trauma of the last few
years, both blacks and whites have greatly changed
expectations about when they will retire, though blacks
are more optimistic. In 2003, 42 percent of blacks and
28 percent of whites thought they’d retire before age
60. Now, only 17 percent of blacks and 10 percent of
whites think they will.