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The average new investor looks different from years past. They are younger, more eager, ready to learn — and Black.
A new report from the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation’s National Financial Capability Study found a “new generation of younger investors entering the market with substantially different investment behaviors and attitudes than older generations.” The study dives into the specific experiences of investors of color in America.
Black investors with non-retirement investment accounts increased by nine percentage points, or 45%, from 2015 to 2021. And more than half of them are under 35, meaning Gen-Z and Millennials are driving the change. Slightly over a quarter are between 35 and 54, and under a quarter are 55 and older.
FINRA’s Director of Investor Education Community Outreach, Ritta McLaughlin, says seven factors drive participation in the capital and stock market: education, awareness, accessibility, incentives, consumer protections, reduced barriers to entry, and innovation.
“Based on the data we have now, and if the pattern holds, I think that it’s feasible to think more and more people of color, and more Black investors, are going to be participating in the market,” Olivia Valdes, a researcher at FINRA’s Investor Education Foundation, says. “We’ve seen in past research that when you join the market, you rarely leave the market.”
With making money both short- and long-term as their reasons for participating, Black folks are in it for the long haul, regardless of the ups and downs, potential or unpredictability.
Modern-Day Black Investors
The increase in investors is a good sign, indicating a willingness to take risks to grow wealth. However, Black people still have less in their investment accounts than white or Asian investors.
According to the report, nearly 60% have less than $50,000 in non-retirement investment accounts, and within that group, a third has less than $5,000. And it makes sense because almost half of those surveyed said they started investing less than two years ago. Around 58% of white investors have participated in the market for 10 years or more.
New investors are also more likely to engage with meme stocks and cryptocurrencies, which are riskier investments. 44% were invested in cryptocurrencies, and over half were considering them. According to the survey, Black investors had shares in AMC or GameStop, both popular on Reddit’s WallStreetBets forum and the center of the GameStop short squeeze in 2021.
However, Valdes tells Word In Black many are only willing to take average risks, which does not align with the volatility of meme stocks or cryptocurrencies.
Keeping the Momentum
Black focus group respondents pointed to differences in socio-economic backgrounds, lack of education, and experiencing discrimination and racism from financial institutions as reasons why they did not previously participate.
An increased appetite for investing means it is essential to have products that match, McLaughlin says. Technology has certainly helped, with companies like Robinhood and Betterment removing barriers to entry. In fact, according to the report, 65% of Black investors rely on suggestions from mobile trading apps.
They are also turning to YouTube, Instagram, Facebook, Twitter, and TikTok — more than other social media sites — for information on investing and trusting sources they deem relatable or transparent, according to the report.
“We have seen, including from our focus groups, that folks are very interested in user-friendly interfaces and information,” Valdes says.
Because they’re starting young and have access to information, McLaughlin describes the future of Black investors as full of “possibility.”
“One of the great takeaways from this report is recognizing that trajectories for young people and communities can change,” she says. “Yes, there’s lots that can still be done and that needs to be done, but we are seeing strides being made to have the markets work for all people who want to participate.”
