The stock market is one of America’s greatest wealth-building engines. However, Carla A. Foster, vice president of Charles Schwab & Co. says blacks consider it far more risky than other investments. The 7th Annual Ariel-Schwab Black Investors Survey, which examined 500 black and 500 white households with annual incomes of more than $50,000, uncovered misconceptions and language barriers that hinder African Americans from participating more in the stock market.
Blacks who actively trade stocks rose to 68% in 2004, after dropping to a five-year low of 61% during the recession. According to Foster, there has long been mistrust and anxiety over investing in the market. The survey shows that this year’s big concern for African Americans is the market timing issue. Only 50% think that being patient enough to see an investment through to the long term is important. Foster urges investors to be patient. “It’s really not about timing the market but it’s time in the market.” She asserts that blacks, unlike whites, jeopardize opportunities by waiting until they earn a six-figure income before investing. Foster sights this as a mistake because people miss out on the power of compounding.
Results from Schwab’s Test Your Market Smarts quiz indicate that 36% of blacks and 29% of whites were unable to distinguish whether a stock was an ownership share of a company, a bet on a company, or a loan to a company. Only one third of each group knew that trading volume is the number of shares changing hands daily. Foster emphasized that a simple explanation of a word could make a world of difference to a new investor. (For definitions of investment terms, visit www.investorwords.com.)
Blacks consider many other investments at higher rates than do whites, though each ranked a primary home and school tuition as equally important investments. Individuals can benefit from increasing their knowledge base. As Foster points out, the road to financial literacy need not be intimidating.