Black Investment 21st for the Century.

As calls for blacks to invest more aggressively become more insistent, our Board of Economists examines the potential for building wealth in the new millennium

WELL, THE BLINDERS HAD TO COME OFF at some point. After decades of being skittish and standoffish about the stock market, the idea is slowly being embraced by African Americans. This could be due to the national attention the Dow attracted in 1998 by flirting with the record 10,000 mark. Or perhaps the sweeping growth of company 401(k) plans, the formation of organizations like the Coalition of Black Investors, or even initiatives, like the Wall Street Project, trumpeted by the Rev. Jesse Jackson have all helped shine a light on the Dow. Whatever the reasons, a growing number of black Americans are beginning to explore the stock market as a viable wealth building vehicle. The questions are: Is it too late? And are enough of us coming along for the ride?

The BLACK ENTERPRISE Board of Economists (BEBE) convened last October in Washington, D.C., for its semi-annual meeting to discuss the challenges facing black investors and made a series of proposals aimed at urging more African Americans to become active participants in the stock market. Present at the discussion were Earl G. Graves Jr., president and COO of BLACK ENTERPRISE magazine, David H. Swinton, president of Benedict College; Margaret C. Simms, vice president of research at the Joint Center for Political and Economic Studies; Cecilia A. Conrad, an economics professor at Pomona College; Marcus Alexis, a professor of economics and management and strategy at Northwestern University; Lucy Reuben, Dean of the School of Business at South Carolina State University; Thomas D. Boston, an economics professor at the Georgia Institute of Technology; and Andrew F. Brimmer, president of Washington D.C.-based Brimmer & Co. The Board was joined by guest presenter Mellody Hobson, director of marketing with Ariel Capital Management, a black-owned and managed mutual funds firm. Hobson brought a unique understanding of the dilemma to the table. Ariel Mutual Funds, in conjunction with Charles Schwab & Co., recently completed a Black Investor Survey that examined the savings and investment strategies of African Americans compared to whites.

In a tumultuous year in which the Dow climbed to unprecedented heights only to plunge without warning, the Board was presented with a number of questions. In light of the current economic climate, what are the financial implications for African Americans if we, as a group, don't move from being unfocused consumers to savvy investors? And what's the best way to communicate this information to the broader market of African Americans?

Ariel's Black Investor Survey examined 1,232 respondents (500 blacks and 732 whites), ages 18 and older, with an annual household income of $50,000 or higher.

The findings were mixed. The good news: the majority of African Americans polled (57%) currently have money invested in the stock market. One-half reported having accounts in brokerage or mutual fund companies and reported having been invested for an average of 10 years.

The bad news: 55% of blacks say they're doing a fair or poor job of saving money compared to 38% of whites. More than three-quarters of those surveyed believe they lacked the knowledge necessary to make good investment decisions, compared to 46% of whites. And nearly three-quarters of black respondents say their lack of knowledge about investing is a reason why they don't save more.

"Why did we do this poll? We started out thinking about how whenever we talked to people who should know about saving and investing, we were amazed that they didn't," says Hobson. "There must be more discussion in our community when it comes to investing. We have to talk about pursuing appropriate savings vehicles and have some very basic discussions about the power of compounding and why we're not taking advantage of company 401(k) plans to the same degree as our white counterparts. We're missing the boat as a community."

GET IN THE GAME

Not surprisingly, Ariel found African Americans have considerably less wealth stockpiled than their white counterparts when taking into account total savings and investment. Of those surveyed, African Americans reported an average of $117,000 in investable assets (excluding real estate) compared to $224,000 for whites.

One of the conclusions Hobson drew from the survey was that many African Americans fear not having immediate access to funds should an emergency arise. "People always ask us `How will I know I'll be able to get my money?' They don't think they'll have ready access to their money and that was cited as a big reason why they're not investing," says Hobson. "But many feel if they put it in a bank they can go and get it exactly when it's needed. The idea of saving for an emergency is very important to our community."

Given the different life circumstances of many African Americans, David Swinton feels this wasn't an unexpected finding. "Just the fact that you found blacks with only $30,000 as a median amount saved, including retirement, means their liquid assets are relatively small. And when you have that little you're probably looking at it for emergencies. There may be no difference in knowledge, just a different stage in the wealth curve," he argues. Swinton believes at the lower end of the income scale, it's probably appropriate to be more concerned about liquidity. "If you're investing for emergencies then you have to get those needs taken care of before you have the freedom to invest, to create this wealth in the future."

Adds Margaret Simms: "It doesn't do any good to approach their strategies as being irrational if in fact emergencies are more likely to occur in those households." That aside, Simms says she was optimistic with the findings in the Ariel survey. "The report says two-thirds of African Americans in this group save or invest money, aside from retirement, at about $267 a month. And over 50% of them have money in the stock market. I have found those to be much more encouraging signs than we've been led to believe."

Another finding: blacks and whites tend to differ on why they're saving or investing. Ariel asked for the number one reason why those surveyed were investing. "Fifty-eight percent of whites said they were investing for retirement," says Hobson. "For blacks, the No. 1 reason was their children's education."

Says BEBE's Thomas Boston, "If in fact that's different, then it has implications in terms of people's willingness to tolerate risk. If I'm trying to plan for my kids future education, then I'm going to behave in a more cautious manner than if I wanted to accumulate capital for individual reasons," he suggests. "It's important to look at all of the demographic differences within the context of different income and the life cycle of blacks and then design strategies that address these differences. Trying to superimpose a wealth profile on blacks that looks identical to a wealth profile of whites will not work," he explains.

"But," adds Swinton, "this business of trying to shift the savings/investment function, if we can do that, it would have important implications for the future of our group," he says. "That's not an easy thing to do. But if we can actually shift the preference function so that everybody invests a different amount at each income level, then maybe we can begin creating this wealth stockpile we've been talking about."

Adds Earl Graves Jr., "The gap in our wealth difference is becoming larger and larger. At some point if you're not in it, you're going to be left further and further behind in the larger equation. Yes, we may be going through a broader fluctuation in the stock market right now, but over a long period of time, as has been proven over the last 50 to 60 years, an investment in the stock market is the best return that you can have as an investment over any other type of investment."

AN EARLY INTRODUCTION TO THE MARKET

Whether it's truth or fiction, it's difficult to say--but the perception is that discussion of the stock market, investment strategies and other assorted financial issues is common table talk in the households of most whites. The perception is also that the subject is a rare visitor in the households of most blacks that may be more concerned with simply making ends meet.

Economist Cecilia Conrad believes a key to getting African Americans comfortable with the market is an early introduction. "We have to think about getting people involved very early and that's partly a marketing strategy issue. Many of my white contemporaries got their first stock or investment in equities when they were 11 or 12 years old. Some got them as Bar Mitzvah presents," she says. "That's critical--getting people in the habit of thinking about all these different alternatives at a very young age."

Once that introduction is made, a commitment to becoming long-term investors must be made, adds BEBE's Lucy Reuben. Those looking for a quick hit or instant jackpot must understand large scale earnings generally only come over long investment spans. "We must realize the importance of investing for a longer period of time early in the high risk/ return securities. That's a lesson for the young that they've got to get," she explains.

And the time is now, says the Board. Looking at current market volatility, Hobson sees only openings for aggressive, opportunistic investors. "Now we're in a situation where some of the froth is out of the market. And when you think about how wealth is created, it's when others are fearful. There's a real message that can be told to investors about this being the time to invest if you're moving money into the market slowly and over the long term. In short, the time to invest is when the market is relatively low, and thus has a greater potential to rise, not when it's relatively high and more prone to downturns." Hence the old adage "Buy low, sell high."

STRATEGIES FOR THE FUTURE

So where do we go from here? Despite the market fluctuations in recent months, financial analysts still point to the stock market as a primary vehicle for creating and growing wealth. And if African Americans don't start to investigate the market in greater numbers, the Board believes they risk being shut out of that wealth building vehicle forever.

The first step, says Boston, is to assess your resources and devise an investment strategy. "Define certain goals and define an investment strategy that would allow you to meet those goals," says Boston. "Look at your current income to determine whether that will allow you to do that and if not, you need to come up with ways to supplement that income, then develop a sound investment blueprint that is in line with those goals."

Simms says African Americans must "develop an investment rather than a savings mindset. Since the trust in professional brokers is low, it seems we need to spend more time learning about investment options so that we increase our comfort level dealing with professionals. This way we can carefully evaluate options presented to us by brokers," she says. "Also look at forming investment clubs. It forces you to learn more about investment options and has that aspect of peer group pressure because you have to keep at it."

In addition to urging blacks to participate in company-sponsored 401(k) plans, Andrew Brimmer recommends that novice investors who are ready to take the plunge, do so initially through mutual funds rather than individually managed accounts. "The typical black investor does not track the market. And in order to manage your own funds and to be active in the market and give instruction to brokers, you would have to spend a great deal of time researching," says Brimmer.

The Board's consensus: if African Americans are to contend and be economically viable well into the next century, the time to act is now.

"It really doesn't matter what you're saving for as long as you're saving and investing," says Hobson. "We hope this survey acts as a wake-up call for black America because we have to take responsibility for our financial future. No one else will."

RELATED ARTICLE: ECONOMIC OUTLOOK

Brimmer predicts modest gains for African Americans

The American economy is experiencing a marked slowdown and the moderate pace of growth is likely to extend through most of 1999, says economist Andrew Brimmer. A former member of the Federal Reserve Board, Brimmer says the slackening in the rate of domestic consumer spending will be the principal cause of the reduced tempo.

Brimmer says in 1998 there was an average of 15.9 million blacks in the civilian labor force, making up 11.5% of the total. Blacks held 14.4 million jobs, accounting for an average of 11% of the total employed. "On the other hand, if blacks had enjoyed full job parity, blacks would have 15.9 million jobs," Brimmer says.

In 1999, Brimmer forecasts that the number of blacks in the civilian labor force will rise to 16.1 million, with black employment rising to 14.5 million jobs, representing 11% of the total employed.

Brimmer estimates the total money income of black Americans in 1998 rose to $438.4 billion. That progress is expected to continue into 1999 as he predicts total money income of black Americans will rise to $458.5 billion. However, if the African American share of total money income was proportional to their share of the population, says Brimmer, "parity income for blacks would amount to $650.2 billion. So the income deficit may amount to $191.7 billion."

THERESE SALMON, 36, single, Silver Spring, Maryland, international operations manager with the National Association of Realtors. Household income: $50,000-$75,000

Are you currently invested in the stock market?

"Yes. I have shares in my former employer PaineWebber, as part of a company profit sharing plan. I have about $15,000 invested in two mutual funds (Janus and Oppenheimer) and a 401(k) plan. The total portfolio value has grown to over $50,000."

Why did you decide to invest?

"As a single woman it's important for me to be able to take care of my financial well-being. Having my money under a mattress or in a three percent savings account does nothing. But having it in something that's compounded daily is a different story. I've been investing for 12 years now."

Are you concerned about the current volatility in the market?

"I know you're not supposed to time the market. But this looks like the best time to invest because stock prices are low and you know eventually they're going to go back up. The stock market is about patience, which I have."

How did last year's drop impact your portfolio?

"I lost 10% of my total portfolio value. I was shocked and disappointed at first because it was scary. But I got over it. I realized I'm not going to touch this money for another 30 years anyway."

Are your family or friends invested in the stock market or another investment vehicle?

"I've been trying to convince my sister to steadily increase her contributions to her 401(k) plan. The problem is African Americans were raised not to talk about money. So we really weren't educated on what it means and how it affects our lives. By not talking about money and how to invest it we've turned it into this mystical thing that many people are afraid of."

ROBERT WILLIAMS, 40, Chicago, distribution coordinator for Fujisawa Healthcare. Household income: $25,000-$50,000

Are you invested?

"Yes. We have two boys and one daughter: our older son is 21 and in his third year in college, our other son is 18 and our daughter is four. When our boys were growing up, we didn't know about investing in the market like we do now. My wife and I are saving for our retirement, but we also want to be able to provide for our daughter's college education. We've been investing in the market for 13 years and altogether we have about $50,000 invested in various plans."

What's the makeup of your portfolio?

I have a 401(k) plan, about 70% of which is invested in stocks and 30% in bonds. My company is deducting 15% of my salary, and matching 6%"

How did you get introduced to the market?

"I started out investing for short-term goals. My wife quit working after we had our daughter and we started a business and I started to look at it in terms of long-term savings. Even though we borrowed from the 401(k) plan to help launch the business, we don't plan on touching the money; we know it's for our retirement."

ROXANNE BANKS, 37, single, Anaheim, California, cold drink sales development manager for Coca-Cola. Household income: $75,000-$100,000

Are you currently invested in the stock market?

"Yes. I have my money in mutual funds, individual stocks, and a 401(k). The total amount invested is about $50,000."

Why did you decide to invest?

"I wanted to build for my future. I know Social Security won't be there and the only way you can ensure something is going to be there when you retire is to take care of yourself now."

Are you concerned about the current volatility in the market?

"I'm taking this time to invest in companies I believe in. I invest where I shop because I know those companies are growing. And if you're investing for the long term eventually the volatility will subside and what you've put in the market will still be very valuable."

For what purpose is your investment portfolio intended?

"I want to retire early. If my stocks do well l might be able to retire at 50. I live moderately now but I'll be rich when I retire. I'm working for my future now and that works for me."

AARON HENDERSON, 37, St. Louis, quality engineering manager with Boeing. Household income: $75,000-$100,000

Are you invested?

"Yes. I have individual stocks, mutual funds, Roth IRA, 401(k), company stock purchase plan. For the last five years, I have probably invested about $10,000 a year in the stock market. I have invested over the years more than $70,000 in the market."

How did you get introduced to the market?

"My family background. I'm the youngest of four, and I have older brothers and family members investing in the stock market. Early on, I dabbled in penny stocks and then moved into mutual funds. I did a lot of research on stocks in high school and college. I started investing in the market in college."

Are you concerned about the downturn in the market?

"Historically, when the stock market had a bad downturn, you would see a turn around in 12-24 months, and you would gain 15%-25% in some cases, depending on how you invested. So, I look at this as a favorable time."

What's the specific makeup of your portfolio?

"The majority of my investment dollars are in about 16 mutual funds--mostly aggressive growth funds. About 70% are domestic and about 30% are international funds. I have about six individual stocks, mostly blue chips--Boeing, AT&T, Lucent Technologies, Anheuser-Busch and Lockheed Martin."

What's the purpose of your portfolio?

"The majority of the funds are intended for the long term, meaning retirement. That's the purpose of my IRAs, mutual funds and the 401(k). I also have two children, ages 10 and eight. So I'm planning now for college funds."

ROBIN SUMMERS, 43, widow, bond clerk for the New York Times. Household income: $50,000-$75,000

Are you currently invested in the stock market?

"Yes. I started out with $3,000 from my income tax refund. I recently came into some money and I invested every penny of it. Today I have over $125,000 invested in the market."

Why did you decide to invest?

"I majored in economics in college. My first course as a freshman introduced me to what could be earned from the stock market. It's one thing to have money but it's something else to understand how to use it to create wealth."

How did you get your first introduction to the market?

"I've been investing since 1987 when I became eligible to participate in the New York Times stock purchase program and the 401(k) plan. I didn't jump into the market on my own until 1994."

What's the size of your portfolio?

"I have about 18 different individual stocks and my own company stock. I'm invested in my company's 401(k) and I belong to an investment club."

Are you concerned about the current volatility in the market?

"Not really. Too often people try to jump in on the new wave, like with technology stocks. But if you understand your own risk tolerance going in and plan on being invested for the long term it doesn't matter as much. Besides you really don't gain or lose anything until you sell the stock. Until then it's all on paper."

For what purpose is your investment portfolio intended--long-term retirement or short-term investment--i.e., purchase of a home, children's education etc?

"Initially I started for my retirement. I looked around and saw too many people having to take jobs at McDonald's just to get by or having to step down a notch or two after they retire. I don't want to be like that. I want to enjoy retirement."

Are your family or friends invested in the stock market or another investment vehicle?

"My friends seem more reluctant to put their money in the market. But they'll easily go out and get a loan for a new car which won't appreciate in value. I've gotten my children involved in the market. Children need to understand what money is."

ROLANDO RICHARDSON, 31, married, New York, outsourcing specialist with PricewaterhouseCoopers. Household income range: $75,000-$100,000

Are you currently invested in the stock market?

"Yes. We're invested in savings bonds, money market funds and mutual funds (Dreyfus, Vanguard and Hamilton), Gift Trust (American Century) and our 401(k) plans. They're less risky than individual stocks. We have about $9,500 in our mutual funds. Between the two of us we have $60,000 in our 401(k) plans."

Why did you decide to invest?

"Right now we're trying to be very conservative because I think it's the safest way for us to go. We don't have the money to be in individual stocks because we're trying to buy our first home."

For what purpose is your investment portfolio intended?

"We're investing in the mutual funds for our daughter's education and the 401(k) for our retirement. We also know we can borrow against those funds if we need to buy a home."

Are you concerned about the current volatility in the market?

"We've seen this before just like with the crash of 1987. We watched the market rebound. It always does. The economy is strong. If you've got money to gamble this is an opportunity for buyers."

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-- additional reporting by Carolyn M. Brown & Paula M. White