As Wall Street roars back to life after getting slammed by the coronavirus pandemic, experts took notice of the widening gap between people who own stocks and people who don't. Black households are more likely to be in the latter group, The News Tribune reported. The Federal Reserve recently released data showing that 33.5 percent of Black households owned stocks in 2019. The ownership rate among white households is nearly 61 percent. Other minorities, including Hispanics, were also less likely than white families to own stock.
Many factors contribute to this divide in stock ownership. One reason experts say is that Black investors prefer to put their money into safer assets, such as life insurance, bonds or real estate. Even though these markets are safer, they tend to have less returns.
For example, the largest bond fund has returned less than 40 percent over the last decade compared to the largest stock fund, which returned nearly 257 percent in the same time. Black people “are shortchanging themselves by investing in more secure opportunities that yield less of a return,” according to Tatjana Meschede, associate director at Brandeis University’s Institute on Assets and Social Policy.
Another reason is education; some Black people were never taught about the stock market, according to John Rogers, founder and co-CEO of Ariel Investments. “We didn’t have a grandfather or aunt or uncle or mom and dad educating us on the markets because they didn’t benefit from it because of historical discrimination in this country,” Rogers said. Bob Marshall, a Black banking executive in Virginia, also noted differences of financial literacy education contributing to the gap in stock ownership.
Experts also say Black people usually don't have the opportunity to build up wealth to put into the market after they pay the bills. Even for wealthier Black families, they are much less likely to own stocks and see their wealth expand. Over the last few years, researchers said the racial gap in stock ownership is narrowing a bit, but the pandemic and possible recession could threaten that progress.
Overall, if more people of color could invest more in the stock market, and carry that education and progress through future generations, it could help narrow the gap, according to experts. "Toward that end, industry groups are trying to encourage more Black people to become financial planners, who could then draw in potential investors," The New Tribune said.
The differences in stock ownership between white and Black households go back decades, and they narrowed a bit between 2016 and 2019, the most recent data available from the Federal Reserve. But researchers say the coronavirus pandemic and resulting recession probably widened the gap again. “Culturally, I think African Americans are not raised to build equity,” Gary Simms Sr. said, who is a Black investor and global security information strategist. “But I do think the tide is turning.”
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