While more African-Americans are putting money in the stock market, their investments don‚t have nearly as high a dollar value as those of their white counterparts.
"Even though they‚re catching up in investing, it‚ll take a long time to catch up in wealth-building because they haven‚t had the benefits of compounding," says Hobson.
Additionally, African-Americans are more rattled than others by the uncertain market and the proliferation of corporate malfeasance–a sign that they may need more incentive to stay in the market.
About 43% of African-Americans say their long-term confidence in the market was shaken by recent volatility, compared with 25% of whites, according to the study by Ariel and Charles Schwab. Partly, this comes from unfamiliarity and distrust of the market because of these investors‚ late start in the investing world, according to Hobson.
The first step to serving this population is understanding it. This knowledge will help financial providers gain clients‚ trust and avoid pitching inappropriate products.
Interest Growing In Foreign Investments
Investors who want greater equity returns might want to look outside the United States.
"The U.S. market was (performing) so much better than the rest of the world in the 1990s, and investors‚ domestic portfolios got too big," says William Rocco, a senior analyst specializing in international funds at Morningstar, the Chicago fund tracker. "But now that the U.S. has underperformed and the dollar is weakening, everyone‚s thinking, ‘I have to buy foreign."‚
The dollar recently plunged to its lowest level in 21/2 years against the euro and in 17 months against the Japanese yen. Since then, the dollar has gained somewhat, but it‚s still down 11% this year against the euro and 10% against the yen. This means that overseas investments are worth more on a relative basis.
One risk of putting money overseas is that if the dollar keeps rising, the value of foreign investments will fall. Also, investors should understand the risks posed by political and economic instability, weak financial disclosure rules and the delay in getting company information because of time differences. In recent years, there‚s been another issue: U.S. and foreign economies have moved in lockstep due to globalization, undercutting the argument for diversification overseas.