Advertisement

Blacks participating more in stock investing, study shows

 
Desean Moton, 26, of Chicago gets assistance this month at the Center for Economic Progress, which offers help with tax returns and other financial services. Blacks were hit hardest of any racial group in the 2008 financial crisis and recession.  
Desean Moton, 26, of Chicago gets assistance this month at the Center for Economic Progress, which offers help with tax returns and other financial services. Blacks were hit hardest of any racial group in the 2008 financial crisis and recession. 
Published Feb. 17, 2016

CHICAGO

Long fearful of the stock market, African-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 wealth.

But the trend is starting to turn, with 401(k) plans making blacks less reluctant about investing, a national study by Chicago-based Ariel Investments shows. And if the trend continues, African-Americans will start to ease the massive wealth inequality that exists between black and white Americans, said Mellody Hobson, Ariel's president.

Currently, about 67 percent of African-Americans with incomes of at least $50,000 have money invested in stocks or stock mutual funds. That's up from 60 percent in 2010 and 57 percent in 1998, the first year Ariel started doing national surveys to compare investing attitudes and behavior of the races.

More than half of African-American investors surveyed by Ariel said workplace plans were the most important reason for becoming an investor. During the past few years, employers have been enrolling their employees automatically in 401(k) plans without seeking permission first. As a result, employees end up with stock and bond investments that have been growing during the bull market that began in 2009.

In 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.

Both 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.

The 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.

The lowest level for whites during the disappointing period was 76 percent.

Hobson 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.

Blacks 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.

After 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, Emmons said.