I’m not interested in having a socio-economic discussion regarding black Americans and the opportunities (or lack of opportunities) that are at the heart of many of our national discussions on income gaps or other inequalities. My goal today is today review some of the research that Spectrem has completed with households with over $100,000 of net worth and to discuss some interesting differences by ethnicity. And yes, people do invest slightly differently based on ethnicity...and many of the differences could be based on attitudes developed over many years.
This topic caught my attention because one of the topics discussed in our new report Ethnic Influences on Investment Decisions showed that 54% of Blacks indicated that they were “concerned about being able to retire when I want to”. This compares to 46% of Hispanics and 37% of all investors (including Whites and Asians). What is it about the Black investors that make them more concerned about their ability to retire comfortably?
One of the primary differences between Blacks and other investors is that Blacks are more likely to be Business Owners than other ethnicities. Eleven percent of Blacks define themselves as Business Owners compared to roughly 6% of all other ethnicities. Spectrem’s ongoing research with investors has consistently shown that Business Owners are often the least likely to feel they are prepared for retirement (because they are unsure of how to liquidate their businesses) and they are often the least likely to indicate they will ever retire – often because they enjoy what they are doing and are unlikely to want to stop. Additionally, when the overall portfolios of Black investors are compared to others, the percentage of the portfolio represented by privately-held business averages 18%, more than twice the amount of other ethnic groups.
While the overall investment risk tolerance of Blacks seems to be similar to that of other ethnicities – 55% of Blacks indicate their risk tolerance is moderate compared to 57% of all ethnicities – some of the underlying data indicates otherwise. When asked if they would prefer a guaranteed return on the majority of their investments, 75% of Blacks indicated “yes”, while only 53% of the combined total of investors agreed.
Other interesting findings show that Black investors tend to be a little more random with their portfolio holdings because they are sometimes more likely to own various alternatives and other investment types such as commodities and collectibles than others.
Another factor noted in the report is that Blacks were more likely than other ethnicities to identify as Democrats. However, generally Spectrem research finds that, regardless of political affiliation, investments are similar while attitudes are different. Yet the Black investors in our study were more likely than others to believe that their financial situation would be better a year from than (73% vs. 54%) and to admit that their existing situation is better than it was last year (71% vs. 52%).
Overall, Black investors are doing as well as others. But their likelihood to be concerned about their future retirement may be due to their likelihood to worry about their business and/or a propensity to prefer conservative investments.