How to invest in black-owned stocks and other investments

In addition to donating to organizations fighting for racial justice and shopping at Black-owned businesses, you can also leverage your investment funds.

Here's how you can support racial justice in your investment portfolio.

Investing can be daunting for beginners, but you don't have to go it alone. robo advisor is an automated investment service that uses data to build portfolios based on your age, risk tolerance, and other personal factors. It's often much cheaper than working with a traditional financial advisor.

Here are some robo-advisors that offer portfolios that include investments related to minority empowerment in some way.

• wealth front We offer portfolios built with ESG ETFs. You can also add ETFs that specifically support racial justice.

• improvement offers a social impact portfolio that includes ETFs that support racial justice.

There are several advantages to investing yourself. Rather than paying additional management fees, you have complete control over where your money goes and only pay fees related to the investments you choose. However, investing in individual stocks tends to be riskier and requires more effort than diversified investments such as funds. Keep reading to understand what else you need to invest in Black-owned stocks yourself.

If you want to invest even a little, securities account To do so. A brokerage account is exactly where your investments reside. Once you open an account, you are not investing until you actually purchase the investments in it. Choosing an account is just as important as choosing the investments themselves. Some accounts have specific tax benefits that can help you save money over the long term.learn Which investment account is right for you?.

To invest in a company listed on a stock exchange, the company must be publicly owned. The National Minority Supplier Development Council (NMSDC) states that “minority ownership means that the company is at least 51% owned by such individuals, or in the case of a public company, at least 51% of the stock. means owned by one person or persons.” more such individuals (i.e. management and day-to-day operations are controlled by members of those minority groups).”

And while the NMSDC does not explicitly say how many publicly traded black-owned companies there are, many companies are transparent about who their board members are. In addition to companies with a Black CEO or president, our definition also included companies with majority Black ownership.

Here are some publicly traded stocks owned by black people.

• Carver Bancorp, Inc. (CARV)

• Broadway Financial Corporation (BYFC)

Note: “'' has been excluded.penny stocks” or stocks that trade below $5 per share because they tend to carry higher risk.

Kenneth Chavis, a certified financial planner and senior wealth advisor at Versant Capital Management in Phoenix, Arizona, says there are two big benefits for investors in investing in the stocks of Black-owned companies. There is, he says, the potential for diversification and good performance.

Diversification (spreading your investment portfolio across companies in different industries and locations) is key to reducing portfolio risk, as is choosing companies of different sizes. As Chavis points out, small businesses are well known for their growth potential.

“Keeping in mind that some black-owned businesses are small, we find that, on average over time, small businesses outperform the average large business, or even just overall businesses. There's a ton of research showing that it's likely to outperform the market. The market is very high,” Chavis says.

As always, investments should be scrutinized carefully as small businesses are also known to be much riskier.

Only a small number of black-owned stocks are listed on public exchanges, and curating individual stocks to build a portfolio requires research and expertise.Therefore, another option is to use your dollars to invest mutual funds Or an exchange-traded fund that will do that for you.

The NACP ETF tracks the Morningstar Minority Empowerment Index and provides exposure to companies that meet NAACP guidelines (although the fund itself is not sponsored, endorsed, or promoted by the NAACP). In addition, after the fund's operating expenses are covered by fees, all net advisory profits from the fund's management fees are donated to the NAACP.^[0]

You can reward publicly traded companies that donate to support racial justice with your investment funds. In recent years, several large corporations have pledged to fund anti-racism efforts. By investing in companies that are committed to getting your money's worth, you are telling those companies that you support their decisions. You can also see if they have corporate social responsibility (CSR) initiatives that support local communities.

Don't forget that “spending money is investing money,” says a financial educator. budget nista. “If you're putting money into those companies even though you're not an actual stockholder, you might not make a profit.”

She advises looking at the company's social media and website to see who's on the team before spending money.

“It's really important to spend your money on companies that are collaborative,” Arish said.

Traditional investment vehicles like stocks and ETFs are not the only way to support racial justice. Here are some non-traditional investment methods you can explore. Please note that these non-traditional methods should be considered carefully and that investing does not guarantee a return.

peer-to-peer lending companies such as solo fund, giving people who have been previously ignored by financial institutions and traditional lending programs the ability to access capital. SoLo borrowers can set their own loan terms and there is no formal approval process. Lenders earn a “gratitude chip” and borrowers get cash right away. Borrowers can also participate in the SoLo Credit Builder program, which helps establish a credit history for connected bank accounts.

According to Chavis, the benefit of peer-to-peer lending is asset class diversification, and P2P lending is typically uncorrelated with the stock market.

“It’s also a good way to help disadvantaged communities access capital, whether for business or personal reasons,” he says.

Peer-to-peer lending comes with one big risk. That means there is always a chance that the borrower will not be able to repay the loan. SoLo seeks to combat this by providing all borrowers with a “SoLo Score.” This acts as a platform-specific credit score and is based on your initial registration and how your loan is processed. To further reduce risk, Mr. Chavis strongly recommends diversifying the loans you offer by lending to multiple people and ensuring that they do not exceed 10% of your total portfolio.

You may not qualify as an angel investor yet, but you can still invest in cool startups that haven't gone public yet. Republic Investors can find startups and get on the ground floor for as little as $50. The site also allows you to filter listed companies to those with black founders (as well as those with female or other founders). socially responsible investment standard).

If your current bank doesn't meet your needs, consider a Black-owned bank. According to a 2019 FDIC study, minority depository institutions originate a larger proportion of minority-targeted mortgage loans than non-MDIs. Some institutions are designated as community development financial institutions. This means that 60% of financial activity is targeted at low- and middle-income groups.

“I love small local banks,” Aliche says. “Pour your money into banks that reinvest in the communities you are in, and feel free to ask them what they are doing for African American communities. However, they may have a more community-focused approach than a large bank.”

Still awaiting final approval from the U.S. Securities and Exchange Commission, Dream Exchange hopes to become the first minority-owned and operated stock exchange. Dream Exchange plans to focus on small businesses and underserved markets.

work with black financial advisor is another option. A directory of Black financial advisors can be found through the African American Financial Advisors Association.

You can also choose to invest and receive financial guidance through a Black-owned investment platform. For example, Freeman Capital is a Black-owned and founded investment platform that recognizes that the wealth gap negatively impacts women and people of color and offers everything from automated investing to consultations with her CFP. It offers.