More Black Investors Should Look to Stock Market to Grow Their Wealth
This article by Lazetta Rainey Braxton was originally written for and published by CNBC.
If you can’t see it, will you believe in it?
The “it” takes different forms, depending on the context. If the focus is black wealth, the “it” represents the stock market. And in this context, investing time, energy and even money into something unseen can translate into a very risky proposition.
If wealth is a household objective in black communities, the stock market should absolutely be considered.
Low African-American participation in the stock market contributes to the widening wealth gap between black and white households, according to a 2014 study by Credit Suisse and Brandeis University’s Institute on Assets and Social Policy.
There are signs, however, that change is coming. To that point, according to a 2017 market research report, 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.
Proven, tangible options — such as real estate, certificate of deposits and insurance policy contracts — have made the case for expanding one’s portfolio to include the stock market a tough sell for African-Americans.
Let’s be honest, when the stock market’s highs and lows show up in real numbers on investment statements, handling the ping-pong effect between euphoria and misery challenges even the best of us. The stock market as a long-term play requires trust, engagement and belief that “it” was created with us in mind.
The stock market features a concept that resonates with many African Americans: business ownership. In fact, entrepreneurship holds great importance for historically disenfranchised communities seeking greater access to goods, services and sustainable income. Business investment as a stockholder expands opportunities to join other stakeholders in the quest for profitability and returns, as well as to share the risks.
Also, there is no escape from investing in the market if you plan to have a paycheck in retirement. With the decline of employer-funded pensions, workers rely more than ever on individual contributions in market-based investments such as individual retirement accounts, employer-sponsored retirement accounts — e.g., 401(k), 403(b) and 457(b) plans and SEP IRAs — and personal investment accounts, including brokerage and health savings accounts.
As the adage goes, “If you can’t beat them, join them.”
Here are some tangible ways that can help unbelief in the black community regarding stock market investing turn into informed belief:
Assess what you have. Start by looking at your retirement statement and identifying your investments. If your employer does not provide fact sheets on the investments, search the investments online to understand which markets are represented and the strategy behind the investment. Consult with your employers’ retirement plan provider regarding any questions you might have.
Stay informed. Have an affinity for a certain company? Consider setting up an online brokerage account that has no investment minimum and minimal trading costs. Invest an amount that would be the equivalent to something you could do without (e.g., a $5 Starbucks coffee, a $30 dinner, a $100 pair of shoes, a $150 concert ticket — you get the point).Create a Google alert on the company so you can stay current on its activities and assess if it remains a good investment. The buy-and-hold strategy for sound stock investments works well for income tax and wealth transfer strategies.
Spread the risk. While you research buying stocks, consider investing in mutual funds and exchange-traded funds in a brokerage account. Your employer-based retirement accounts use these investment vehicles to spread out the risk of owning a few stocks. The major benefits of owning individual investment accounts along with your retirement account include:
Income tax rates on capital gains (the difference between the stock purchase price and the stock selling price) are typically lower than the income tax on tax-deferred withdrawals from an employer-sponsored retirement account;
Withdrawals are not subject to an early withdrawal penalty; and
Any losses on the stock sales, if taken, can offset taxable income subject to IRS rules.
It’s important for African-Americans to recognize that they don’t have to take the plunge into the stock market alone. Consider taking classes in investments, hiring a certified financial planner and joining an investment club. It’s important to design an investment strategy in the stock market that has your specific investment goals in mind.