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A survey done by CNBC found that half of Black adults in the U.S. do not own assets such as mutual funds, exchange-traded funds or individual stocks. In fact, the survey found that 59 percent of Black women have no investments at all – making Black women the largest demographic with zero investments. Investing is an integral part of creating generational wealth, and according to McKinsey, there is a $330 billion difference between the “annual flow of new wealth” of Black and white families. Investment fears play a large role in the lack of Black participation in investing.
There are undoubtedly many other factors – systemic, societal and historical – that contribute to the discrepancy in generational wealth between minority and white families, which the McKinsey report covers in detail. However, while those big-picture factors could take many years to affect change, investing is something you can start today. It’s a form of taking back a little power (when done under the advisement of a professional financial advisor). So, let’s talk about the top fears that hold people back from investing.
Investment Fear #1: I Don’t Know Enough About It
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A study published by the Journal of Financial Therapy (JFT) found that a lack of education surrounding investment was one of the top-stated reasons Black survey participants gave for not investing. However, many survey participants did say that if they could take a class and learn more about investing, that they would be more inclined to do it.
This fear is greatly understandable. And the desire to be knowledgeable about investing before making any money moves is a responsible one. There is, however, the misunderstanding that learning about investing has to be expensive. Today, there are tons of financial literacy apps that offer daily exercises and easily digestible modules, breaking down important financial terms and investment concepts. In fact, AfroTech lists five Black-owned financial literacy apps here.
Investment Fear #2: The Stock Market Is Unpredictable
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The JFT study also showed that Black investors have a lower risk tolerance than white investors – including high-earning Black investors. They are less likely to be in high-risk, high-return assets such as real estate, stocks or small businesses.
There are, fortunately, stocks and other assets for every type of investor and risk tolerance. If you work with a financial advisor, they can assess your risk tolerance and set you up with a portfolio that will put your assets in historically stable funds, and make sure your money is diversified enough so that it isn’t all tied up in one fund. You can tell your investor you’d like to be put into “low-volatility” stocks – which are, put simply, stocks that have historically not seen major swings.
Also, remember: the key to seeing a return is to leave the money untouched for years, rather than to panic sell/buy when the market is unstable. Sofi reports that the average stock market return over the last 30 years was 10.72 percent. But if you cherry-picked any given year or handful of years in those 30 years, you might have seen a huge loss. When it comes to “safe” investing (remember nothing is a sure thing), it’s about the long game.
Investment Fear #3: I’m Afraid I’ll Lose It All
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When it comes to investing, there can be that shiny-object thought of, “What if I hit it big and never work another day in my life?” But it can be followed by the fear of, “Or what if I lose it all and go into major debt?” This is where the distinction between investing and gambling becomes important. A good financial advisor will tell you to never invest more than you could afford to lose. And always keep liquid assets (like money in checking and savings accounts) that you can access at any time to cover your living expenses. Investing should not dip into your regular cost-of-living budget. This brings up another important point: part of smart investing involves budgeting.
When you create your monthly or annual budget, ensure there are enough funds to live on before setting aside money you’ll use to invest. A smart, simple budget breakdown would include one pile of money for unavoidable living expenses (rent, car payment, food, utilities etc.), one pile for an emergency fund (these will be non-invested funds left readily available to you in case of an emergency, like unemployment or illness) and then one pile for investing. That way, you reduce the chances that you’re ever in a tight spot because of investment behaviors.
