How to Invest in Stocks and Other Investments Owned by Black-Owned
You can invest your money in addition to supporting groups that strive for racial justice or patronizing Black-owned businesses.
Money follows protests, and money is what will enable change to be long-lasting, according to Tiffany Aliche, the budget expert and founder of The Budgetnista.
Here's how to use your investment portfolio to promote racial fairness.
How to finance Black-owned companies
1. Decide how much assistance with investing you want.
A. Utilize a robot advisor to assist you
Beginners may find investing intimidating, but they don't have to tackle it alone. The automated financial services known as Robo-advisors use your information to create a portfolio that is tailored to your age, risk tolerance, and other personal characteristics. They are frequently much less expensive than hiring a conventional financial counselor.
These Robo-advisors provide portfolios with investments relevant to minority empowerment in some way:
An ESG ETF-based portfolio is available through Wealthfront. Additionally, you may include an ETF that supports racial justice.
An ETF that promotes racial justice is part of the Social Impact Portfolio that Betterment offers.
B. Invest your own money
Self-directed investing offers certain advantages: Instead of paying a separate management fee, you retain complete control over where your money is invested and only pay the costs connected with the assets you select. However, buying individual stocks typically entails more risk and work than buying more diversified investments like ETFs. Find out what else you'll need to invest on your own in Black-owned stocks by reading on.
2. Select a brokerage account
Any investment you make will require a brokerage account, therefore you must have one. Your assets are just held in a brokerage account; once you open one, you are not invested until you acquire the securities that will be kept there. Selecting your account is just as crucial as selecting your investments. Some accounts offer particular tax advantages that can enable you to make long-term financial savings. Find the ideal investing account for you.
3. Examine companies with Black Ownership
A corporation must be publicly held in order for investors to purchase shares on the stock exchange. According to the National Minority Supplier Development Council (NMSDC), "ownership by minority individuals means the business is at least 51% owned by such individuals, or, in the case of a publicly owned business, at least 51% of the stock is owned by one or more such individuals." This means that the minority group members are in charge of management and day-to-day operations.
And even though the NMSDC does not specifically indicate the number of Black-owned public companies, many businesses are open about who sits on their executive board. Companies having a Black CEO or president as well as those with a majority Black ownership were included in our definition.
Black-owned stocks
Here are a few Black-owned publicly traded stocks:
- RLJ Lodging Trust (RLJ)
- Urban One, Inc. (UONE)
- Global Blood Therapeutics, Inc. (GBT)
- Carver Bancorp, Inc. (CARV)
Note: We excluded any "penny stocks" from this list, or those that are trading for less than $5 per share, as they tend to carry more risk.
Kenneth Chavis, a certified financial planner, and senior wealth manager at LourdMurray, says investing in the stock of Black-owned companies can have two major advantages for investors: diversification and the potential for strong performance.
Diversification — which involves spreading your investment portfolio across companies of different industries and locations — is key to reducing risk in your portfolio, as is choosing companies of different sizes. As Chavis notes, small companies are often known for their growth potential.
“Keeping in mind that some of the Black-owned companies are smaller, there is a ton of research that shows that over long periods of time, on average, the probability that a smaller company will outperform the average large company — or just the broad market — is extremely high,” says Chavis.
Small companies are also known to be much higher risk, so as always, you'll want to vet your investments carefully.
Minority empowerment ETFs
There are only a handful of Black-owned stocks listed on public exchanges, and weeding through individual stocks to build a portfolio requires research and expertise. So another option is to use your dollars to invest in mutual funds or exchange-traded funds that will do that work for you.
The NACP ETF tracks the Morningstar Minority Empowerment Index and provides exposure to companies that meet the NAACP’s guidelines (though the fund itself is not sponsored, endorsed, or promoted by the NAACP). Plus, all net advisory profits from the fund’s management fee are donated to the NAACP. There is also a growing number of ESG funds or funds that are graded using environmental, social, and governance criteria.
3. Invest in companies that financially support racial justice
You can reward public companies that donate money to support racial justice with your own investment dollars. Over the last few years, several large corporations have pledged money toward anti-racism efforts. By investing in companies that are committed to putting their money where their mouth is, you are letting those companies know you support their decisions. You can also see if they have a corporate social responsibility, or CSR, initiative that is supporting local communities.
Remember, too, that “spending money is investing money,” says Aliche. "You might not be seeing a return if you're not an actual stock shareholder, but you're putting money into those companies."
Before spending your dollars, she advises looking at a company's social media, and its website and reviewing who is on its team.
“Spending your money with companies that are in alignment is critically important,” Aliche says.
Other ways to invest in racial justice
Traditional investment vehicles such as stocks and ETFs aren't the only way to support racial justice. Here are some non-traditional investing methods you can explore. Just keep in mind, these non-traditional methods should be looked at carefully, and no investment is guaranteed to make you a return.
Check out peer-to-peer lending
Peer-to-peer lending companies, such as SoLo Funds, give people who have historically been overlooked by financial institutions and traditional loan programs the ability to access capital. SoLo borrowers can set the terms of their loan themselves, and there is no formal approval process. Lenders earn “appreciation tips,” and there are no minimum requirements, so you can get started with any amount.
The benefit of peer-to-peer lending, Chavis says, is asset class diversification: P2P loans are typically not correlated to the stock market.
“It's also a good way to help disadvantaged communities get access to capital, either for business reasons or personal reasons,” he says.
Peer-to-peer lending comes with one main risk: There is always a chance the borrower may not be able to repay the loan. SoLo attempts to counteract this by providing every borrower a “SoLo score,” which acts as a platform-specific credit score and is based on your initial registration and how you handle your loans. To further reduce risk, Chavis strongly advises diversifying the loans you offer by lending to multiple people and allocating no more than 10% of your overall portfolio to this practice.
Explore startups or real estate crowdfunding
You may not have angel investor status yet, but you can still invest in some cool startups that aren’t yet publicly traded. Republic allows investors to find emerging businesses and get in on the ground floor for as little as $10. The site also lets you filter listed businesses to those with Black founders (as well as to those with female founders and other socially responsible investing criteria).
You can also invest in real estate (and in some cases, the businesses those buildings will house) with Buy the Block, a crowdfunding platform that is all about providing people with an equity stake in their communities and working to stop gentrification. You can invest in Buy the Block for a minimum of $100 (which is significantly less than most real estate crowdfunding platforms). Many of the projects listed on Buy the Block are in historic Black neighborhoods or benefit a local Black community, such as markets that aim to bring produce grown by Black farmers into food deserts.
As always, do your research. Investing in startups and real estate crowdfunding carries a significant amount of risk, and you may lose your entire investment.
Rethink your bank
If your current bank doesn't meet your needs, consider a Black-owned bank. According to a 2019 FDIC study, minority deposit institutions originate a greater share of their mortgage loans to minorities than non-MDIs. Some are also designated Community Development Financial Institutions, which means 60% of their financing activities are targeted at low- and moderate-income populations.
“I really like small, local banks,” Aliche says. “Put your money toward banks that are reinvesting back into the community where you are, and don’t be afraid to ask what initiatives they have for the African American community. Even if it’s not an African American-owned bank, they might have more community-focused initiatives than a larger bank.”
Learn from and work with Black financial professionals
Working with a Black financial advisor is another option. You can find a directory of Black financial advisors through the Association of African American Financial Advisors.
You can also opt to invest and get 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 is hurting women and people of color, and offers everything from automated investing to consultations with CFPs.