It’s not as if there was a deep pool of African-American stock owners before the sudden downturn and volatility in the market, but the relatively few Black owners are diminishing at an alarming rate, according to a new study.
The unfortunate thing, say observers, is that even though Blacks traditionally trail Whites in stock ownership, the number of African-American stock owners has risen substantially in recent years. For example, they note, the rate of stock ownership by Blacks increased to 34 percent in 2001, up more than 17 percent from 1992. However, between 2001 and 2004, those gains evaporated by 12 percent, according to the study, “The Decrease in Stock Ownership by Minority Households,” which looks at individual stocks and those within a 401(k) and IRA.
“It may be that White investors are more experienced with the stock market, so they are prepared for the inevitable drops,” Hanna Sherman, a financial planning professor at Ohio State University, told Black Enterprise magazine, referring to the 2001 recession, which scared off many Black investors.
The publication reports that “the rate of stock ownership among White households increased from 1992 to 2001, topping off at 57.5 percent. Unlike minority investors, their investment rate dropped less than a percentage point between 2001 and 2004. What’s more, even after equaling out traditionally higher income levels of Whites to that of Blacks, Whites still invest more than African-Americans.”
The findings do not portend good news for African Americans and their ability to create and retain wealth, says Sherman.
“If you look at high-wealth households of all racial or ethnic groups, they tend to either have a lot of stock investments, their own business, or substantial real estate investments, and many of them have all three,” Sherman says. “It’s very uncommon for people to build wealth unless they have one or more of those three types of investments. …If you want to build wealth you have to diversify and accept risk. If you’re properly diversified, you have the ups and downs, but over the long run buying stocks is still the best way to build wealth.”