Profiling the Black investor: a long-neglected market begs to be tapped.
We've all seen evidence of African Americans' collective spending power The power of legislatures to tax and spend.
Spending power is conferred to state and federal legislatures through their constitution. Judicial Review of legislative spending varies from state to state, but the law of federal spending informs courts in all states. , if merely from the numerous ad campaigns aimed at our community. But until recently, what remained something of a mystery was just how we save and where we stow our money.
Recent studies are now shedding light on the subject, pointing to how African Americans African American Multiculture A person having origins in any of the black racial groups of Africa. See Race. as a group invest and save and just what they expect to reap. And after sifting through the information gathered, the lesson many of us should walk away with is that we need to examine avenues for diversifying our assets.
A recent survey, commissioned by Chicago-based Ariel Capital Management, the African American investment firm run by John Rogers John Rogers may refer to: Europeans
Working in conjunction with a polling firm, Roper Starch, Ariel found that African Americans are indeed very active in financial planning Financial planning
Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against , with 93% of those polled responding that they had some sort of investment pattern over the last year. That percentage was no different from the slice of all Americans, across racial lines, that engaged in methodical me·thod·i·cal also me·thod·ic
1. Arranged or proceeding in regular, systematic order.
2. Characterized by ordered and systematic habits or behavior. See Synonyms at orderly. financial planning.
But even though Americans across the nation's ethnic divisions agree on the importance of active management of their assets, there remains a large difference. Only 27% of African Americans buy stocks and bonds, compared with 38% of nonblacks. African Americans were also less likely to invest in several other important wealth-building instruments. The percentage of blacks investing in mutual funds was 22%, vs. 35% of non-African Americans; 13% of African Americans invested in money market accounts, vs. 26% of non-African Americans.
The reason might well be linked to African Americans' frugal fru·gal
1. Practicing or marked by economy, as in the expenditure of money or the use of material resources. See Synonyms at sparing.
2. Costing little; inexpensive: a frugal lunch. ways. Compared with other Americans, blacks are generally more conservative in their investment choices, choosing to spread their investment portfolio across an average of 3.3 investment vehicles, as opposed to the 4.1 median for other groups. That pattern has surfaced in other studies as well, as documented in Black Wealth/White Wealth by Melvin L. Oliver, a professor at UCLA UCLA University of California at Los Angeles
UCLA University Center for Learning Assistance (Illinois State University)
UCLA University of Carrollton, TX and Lower Addison, TX , and Thomas M. Shapiro of Northeastern University Northeastern University, at Boston, Mass.; coeducational; founded 1898 as a program within the Boston YMCA, inc. 1916, university status 1922, fully independent of the YMCA 1948. . Citing statistics gathered in 1988, the two found that blacks had more of their overall assets sunk into their homes (63%) than whites (43%), and less in stocks, bonds and other financial stores of wealth .
That's not to say African Americans are willing to settle for less. Although their investments are less diversified, they expect a larger payoff, with expectations focused on an annual return of 14.6% vs. 11.2% for non African American investors. African Americans also differ from the country's other ethnic groups in that they are much more concerned about an investment firm's managerial diversity. Race, religion and gender variety in the boardroom were found to carry more weight with blacks than other ethnic groups. The community activities of investment firms were also found to be more important to African American consumers. Still, the black community shows a fairly uniform idea of the most important factors in selecting a company. A solid reputation (84%), a strong performance record (82%) and a way to easily access money invested (65%) were all major concerns.
African Americans have shorter investment horizons, with six years being the longest time frame that investors were willing to wait on average, vs. 7.3 years for non-African Americans.
"The African American market, with approximately $36 billion in disposable income disposable income
Portion of an individual's income over which the recipient has complete discretion. To assess disposable income, it is necessary to determine total income, including not only wages and salaries, interest and dividend payments, and business profits, but also , is a huge, untapped group, presenting tremendous potential for our industry and our business," notes Mellody Hobson Mellody Hobson (born April 3, 1969) is the president of Ariel Capital Management, LLC, a Chicago investment firm managing over $14 billion in assets. She is also the Chairman of the Board of Trustees of Ariel Mutual Funds. , senior vice president at Ariel. And, to heed the many lessons held in the results themselves, BLACK ENTERPRISE suggests you examine your overall portfolio and check to see if broadening the types of investments you hold will help increase your returns. One good place to take such a financial check-up is on online services provided by big mutual fund companies such as Fidelity (www.fidelity.com), T. Rowe Price T. Rowe Price (NASDAQ: TROW) is an independent global investment management firm and mutual fund manager based in Baltimore, Maryland. It was founded in 1937 by Thomas Rowe Price, Jr..
T. (www.troweprice.com) and the Vanguard Group (www.vanguard.com). All three Web sites provide information on portfolio mixes that are designed with your goals, investment horizons and tolerance for risk in mind.