These Options Can Help Black Americans Grow Investments In The Coming Year

Stocks, bonds and 401(k)s are often aligned when investors are seriously looking at ways to build a hefty nest egg for retirement

Stocks, bonds, and 401(k)s are often aligned when investors are seriously looking to build a hefty nest egg for retirement.

Determining which investment choice to pour hard-earned money into can be mind-boggling when trying to build a robust financial strategy. Yet you don’t have to be a high-profile Wall Street investor to devise such a plan. Investment experts who analyze financial markets can provide fundamental insights to help you enhance your financial planning efforts for 2024.

A recent report for this year shows some top investments. They consist of high-yield savings accounts, short-term corporate bonds, value stock funds, and rental housing, among them. However, investors must consider there are no assurances for investments, meaning they can come with gains and losses.

BLACK ENTERPRISE connected with Roberta King, a vice president and branch leader at an investment firm, and other experts at one of the nation’s largest mutual fund companies to help Black Americans examine some top investment options.

King urges investors to think about asset location—investments that are kicking off significant taxable distributions may be better held in a tax-advantaged account like an IRA. Indeed, there are other types of tax-advantaged investment partnerships, such as municipal bonds, annuities, and qualified 401(k) retirement plans.

And though there are other asset classes like real estate, stocks, and bonds, money is generally the main option in a 401(k) and what most people use to produce a cache for the golden years.

King added investors should consider their cash flow and emergency fund.

“If those needs require access to cash in two years or less, investors should develop a short-term asset allocation strategy and weigh the benefits and risks of various cash equivalent investment products to maximize the return on their cash holdings.”

When saving for retirement, King advised investors to strongly consider first contributing up to any employer match in employer-sponsored plans and, if eligible, maximizing HSA (Health Savings Account) contributions.

Another key point to examine: “Ensuring financial security with insurance, in the case of illness, disability or loss of life should be a primary objective for every individual.”

Still, experts contend the initial step to successful investing is determining your goals and risk tolerance, whether on your own or with help from a financial professional. The reason: If you do your homework and gain facts about saving and investing with a keen plan, you can boost your chances of increasing financial security over time and better help manage your money.

Needless to say, stocks, bonds, and 401(k) plans are not risk-free. Consider there is no guaranteed return with stocks. Bonds often provide a lower return than stocks and can fall in value as interest rates rise. For 401(k) plans, cons can include an early withdrawal penalty of 10% of the amount withdrawn before age 59 ½, and people make investment choices with scant advice from plan providers.

Here’s a peek at stocks, bonds, and 401(k)s and what they can offer:

Stocks

Also called equities, stocks can be a great way to build wealth as one of their benefits is the investment typically appreciates in value as a company performs well. Another bonus is companies share profits with investors through customary payments known as dividends. Stocks fall in several different categories—ranging, for instance, from growth stocks to large-cap stocks that include the S&P 500— that can show how investors make money. Selecting what stock to buy can take much diligence, and this link and another here might be helpful.

A new report shows the portion of Americans owning stock in individual shares, mutual funds, and retirement accounts rose to a record level in 2022. Nearly 58% of American households owned stock in those investments last year, topping the previous high market before the global financial crisis. The fresh finding is from the Federal Reserve’s most recent Survey of Consumer Finances.

In a recent survey, Clever Real Estate found that 27% of Black Americans said they plan to invest more in 2024—making it one of the most popular financial goals for the upcoming year. That number is even higher for Black Americans under 34 at 29%. It’s encouraging to see that more Black Americans are taking this opportunity to improve their long-term financial outlook.

Matt Brannon, the study’s author, says it’s no secret that many Black Americans are feeling economic insecurity now, given high prices and interest rates. He added the rise in stock ownership is a direct response to this environment, noting investing is a hedge against inflation.

He offered this investing tip:

“Buy low, sell high” sounds easy, but it rarely is that simple. So don’t try to time the market or beat the market. Consider investing in low-cost index funds or ETFs. Investing in the S&P 500, for example, is likely to be less volatile and more consistent than trying to pick stocks individually.”

William Michael Cunningham, an economist and banking analyst, says over the long term, large publicly traded stocks are a good investment.

“Having said that, we appear to be entering a period of short-term uncertainty. I still think stock index funds, like the Vanguard S&P 500 Index Fund, will do well over time.”

Bonds

Investing in a bond means you’re buying into a fixed-income instrument that represents a loan made by an investor to a borrower. Essentially, you’re buying a part of a company’s debt and repaid with interest on it on the bond’s maturity date. Bonds are known as fixed-income investments, as their main goal is to provide constant income. Check out these resources tied to bonds.

If you have a low-risk tolerance, Brannon suggested investing in CDs. He says CDs are generally FDIC-insured, so you have a minimal risk of losing money, provided you don’t pull your investment out before maturity. With interest rates as high as they are now, investing $10,000 in a CD earning 5.5% annually would net you $550 in 12 months.

“Just like that, paid for multiple trips to the grocery store, or added to your retirement fund, by parking your money and doing nothing.”

401(k) plans

Here is some disturbing data: Black retirees, on average, have $120,460 saved versus $170,726 for all retirees. And around 51% of Black retirees say they have no money saved for retirement, versus 37% generally. The data was disclosed in a recent BE report.

Yet, the bright side is there are some actions you can take to help boost your 401(k) account if you have one; regardless of whether you’ve just started working or are an experienced investor, you can gain more details about 401(k)s and how they work. To help get started, an investment firm recommends putting away 15% of your income, which can include an employer match. The firm explains the 15% goal is often aspirational, but it could be great to have that target in mind. If able, try to boost your contribution by 1% each year.

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