The volatility in the stock market makes it an investment avenue that some people are not easily willing to venture into. Yet it remains a viable and lucrative avenue for diversifying one’s income sources.
Amidst the unparalleled volatility in the stock market triggered by the pandemic, which the effect still lingers, the most recent Ariel-Schwab Black Investor Survey uncovers a significant decline in investment among Black and white Americans. As of 2022, only 58% of Black Americans and 63% of white Americans owned stocks, in contrast to the peak figures recorded in previous surveys: 74% for Black investors in 2002 and 86% for white investors in 2015.
For over two decades, Ariel Investments and Charles Schwab have examined the investing and saving tendencies of Black and white Americans. The 2022 survey contrasts Black and white respondents with average household incomes of $99,000 and $106,000, respectively.
Although the investment disparity between Black and white Americans diminished in 2022, there was a notable decline among white investors (dropping by 8 percent from 71% in 2020), while Black investors saw only a marginal increase (rising by 3 percent from 55% in 2020).
Similarly, the Wall Street Journal reported that in 2022, Federal Reserve data showed that almost 40% of Black Americans owned stock, up from about a third in 2016.
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However, an intriguing aspect of the study is that the recent surge in stock market participation is partially driven by young Black investors, with 68% of Black respondents under 40 now investing, in contrast to 57% of younger white investors.
“You’re seeing topics of money and investing coming up at the dinner table slightly more among Black families than they had ever before,” said Arielle Patrick, Ariel Investments’ chief communications officer.
Moreover, fueled by mobile apps, commission-free trading, participation in 401(k)s, crypto, meme stocks, and social media, experts have observed that young Black investors are gaining increased access to financial tools and information.
Despite Black individuals potentially not allocating as much capital into stocks, the aspiration to purchase stocks and make sound investments is steadily expanding, largely attributed to the influence of social media, as indicated by the Finra Investor Education Foundation.
A concerning trend highlighted by Ariel Investments and Charles Schwab among Black and White investors is the apparent enthusiasm for investing paired with a notable lack of education regarding those investments. According to the study, 47% of Blacks and 45% of White investors admitted to investing their money in sectors where they lacked a comprehensive understanding. This trend is even more pronounced among investors under 40, with 58% Blacks and 46% Whites falling into this category.
When seeking to expand knowledge about stocks and financial investments, the study discovered that one-third of Black investors (33%) rely on sources that are less credible for their investment decisions, predominantly information from social media, in contrast to less than a quarter of White investors (20%). This disparity is even more significant among Black and White investors under 40, with 51% and 36%, respectively.