invested in equities for one to three years while 11.5% have been invested for less than a year. (On average, our respondents have been active investors in the stock market for 5.6 years.) Because they have been participants in the market for seven to 15 years, an aggregate 18.3% of the respondents have been the full beneficiaries of the current bull market. Another 6.6% have been in stocks for 16 to 20 years or more.
Says Mellody Hobson, senior vice president of Ariel Mutual Funds, the black-owned investment firm that manages the Ariel Fund, Ariel Premier Bond and Ariel Appreciation Fund (all listed on the be Black Fund Watch, “Off to the Races,” Moneywise, October 1999),”Over time, the stock market is the best venue for you to accumulate wealth. Even with the periodic dips, the market has shown an uptrend for more than 70 years.”
The data bear her out. In the Stocks, Bonds, Bills and Inflation 1999 Yearbook, compiled by Ibbotson Associates, the Chicago-based investment research firm, the compounded annual returns for small cap stocks were 12.4%; large cap stocks were 11.2%; long-term corporate bonds were 5.8%; and U.S. Treasuries were 3.8%, between 1926 and 1998. During this same period, inflation was 3.1% per annum. Expressed in dollar terms, Hobson found that a hypothetical investment of $1,000 would have generated $5.08 million if you invested it in small caps; $2.32 million in large caps; $61,299 in long-term corporates; and $15,220 in U.S. Treasuries. The total cost of inflation: $9,287.
STEPS YOU CAN TAKE
So have African Americans missed the boat? Not by a long shot. It’s just time for you to get started. One way is by letting the Black Wealth Initiative serve as your guide:
Step 1: Follow the be Circle of Wealth. The diagram shows the steps that you need to take to get started. First, acquire knowledge about wealth and how to build it. Second, make a commitment to pursue a program of wealth-building. Third, once you have made the commitment, begin to save and invest now. Your practice of steady investment should evolve into a program of portfolio management. Sound portfolio management will beget wealth. And wealth will enable you to make direct investments in our children, businesses and communities.
Step 2: Assess your financial position. As you undertake this process, you must have a clear definition of wealth. Do not mistake it for your take-home pay or owner’s draw. Wealth, simply put, is your current assets minus your current liabilities. It’s what you own minus what you owe.
If you followed the everyman’s tome of wealth-building, The Millionaire Next Door (Pocket Books, $14), the authors Thomas J. Stanley and William D. Danko advise a formula in which you multiply your age by your realized pretax annual income from all sources except inheritances. Divide by 10. This figure, minus any inherited wealth, is what your true net worth should be. Using an example from the book, if you are 41 and earn $143,000 a year, and have investments that return another