Asked the size of investment returns they expected, 27% of Black investors cited outsized annualized returns of 20% or higher, and 19% thought they could “get rich quick” through investing. This compared with only 12% of white investors who anticipate returns of 20% or higher, and 7% who cited immediate profits as a reason to invest.
Thirty-four percent of Black investors under 40 and 15% among white investors of the same age said they expected returns of more than 20%.
Barriers to Investing
Black Americans are less trusting of the stock market and financial institutions than white Americans, and this has led to many Black investors to pull out of the market.
The study found that since 2020, Black Americans either stopped investing or have never invested. Their reasons: 36% cited lack of trust in the stock market, versus 29% of white investors; 25% said they don’t trust financial institutions, versus 19; and 15% said they had had a bad investing experience, versus 9%.
Moreover, 56% of Black investors expressed fear of losing money, compared with 46% of white investors. At the same time, 48% of Black investors saw the stock market as offering a fair opportunity for all to profit, up from 40% with this perception in 2020. The Ariel-Schwab survey said this finding signals optimism for the future.
Feelings of respect have also improved, even though trust remains low. As in 2020, Black Americans were less likely than white Americans to feel respected by financial institutions, but that gap has decreased substantially.
Forty-four percent of Black Americans said they feel more respected in 2022, up from 35% two years ago, while 51% of white investors said they feel respected, down from 62% in 2020.
In terms of growing and protecting their assets, Black Americans are less trusting of people and more trusting of technology than white Americans. Trust in technology among Black Americans is highest among men, new investors and investors under 40.
Over the last several decades, the Black Investor Survey has shown that 401(k) plans have been the entry point to investing for many Black Americans. But even as the defined contribution plan participation gap between Black and white investors has nearly closed, participation rates have stagnated and are well below 2015 numbers, according to the most recent findings.
In addition, investors are entering the stock market through a wider variety of investment vehicles. In 2020, 63% of Black investors reported first investing through a retirement plan. This year, respondents were given an expanded list of entry point options, and only 31% of Black Americans reported first investing through a workplace plan.
Black Americans are saving and investing more in 2022, with contributions up by 40% to $657 per month on average from $393 in 2020. The increase is driven by new investors, high earners and respondents under 40.
Despite these strides, white Americans are saving and investing significantly more — $857 per month.
Historically, the survey has shown that Black Americans are less likely than white Americans to have discussed the stock market while growing up. Over the past two years during the pandemic, however, the gap has closed as Black and white investors are almost equally as likely to discuss the stock market with their families.
Today, 41% of Black investors said they have dinner table conversations about investing, up from 37% in 2020, while 43% of white investors reported the same thing, up from 36%.