CHICAGO — Black Americans generally have stayed clear of stocks and mutual funds for generations, and consequently many with solid incomes have lagged far behind whites in accumulating wealth.
But the trend is starting to turn, with 401(k) plans making blacks less reluctant than past generations about investing, a national study by Chicago-based Ariel Investments suggests. And if the trend continues, black Americans will start to ease the massive wealth inequality that exists between black and white Americans, said Mellody Hobson, Ariel's president.
Currently about 67 percent of African-Americans with incomes of at least $50,000 have money invested in stocks or stock mutual funds. That compares with 60 percent in 2010 and 57 percent in 1998, the first year that Ariel started doing national surveys to compare investing attitudes and behavior of the races.
More than half of African-American investors surveyed by Ariel said workplace plans were the most important reason for becoming an investor. In recent years employers have been enrolling their employees automatically in 401(k) plans without seeking permission first. As a result, employees have ended up with stock and bond investments that have been growing during the bull market that began in 2009.
In 1998, 81 percent of whites were investing in the stock market. Now 86 percent of whites with incomes of at least $50,000 have stock or stock fund investments — the highest level Ariel has ever found.
White as well as black Americans shied away from the stock market after the 49 percent crash in 2000-2001 and the 57 percent crash in late 2007 to early 2009, according to Ariel surveys.
The 2000 crash came after a euphoria about the stock market and tremendous hype over technology stocks that turned out to be misleading. Investing by blacks had hit its highest level before that crash scared away investors. At the peak, 74 percent of blacks had stock investments either directly or through mutual funds, according to an Ariel survey from 2002.
After the scary decline, black involvement fell to 61 percent, and after the housing crisis and recession, participation by blacks in the stock market fell to 57 percent.
The lowest level for whites during the disappointing period was 76 percent.
Hobson said she was encouraged by the optimism the survey found among blacks and sees it as a potential opening to build more investing behavior among African-Americans. Although only 50 percent of whites are optimistic about the economy, about 75 percent of blacks said they feel hopeful about the economy, and 65 percent of blacks thought the economy had either recovered from the recession or was on its way to a full recovery.
Blacks were hit the hardest of any racial group in the 2008 financial crisis and recession and did not bounce back as whites did, in part because the primary source of wealth for blacks was their homes and not the stock market, according to research by St. Louis Federal Reserve economist William Emmons.
After early 2009 the stock market climbed more than 150 percent, restoring wealth to people with those investments. Many blacks had trouble recovering because they had little equity in their homes, lost jobs and could not take advantage of low interest rates to refinance, Emmons said.
In 2014 he found that the median Hispanic and black wealth levels were about 90 percent lower than median white wealth, even though income levels were only 40 percent lower. That suggested the investment choices played some role in the difference.
"The larger wealth gap could be due to Hispanics and blacks investing in low-return assets like housing, as well as to borrowing at high interest rates," he said.
Historically, he noted, homes appreciate at close to the rate of inflation while stocks have averaged much stronger returns. Since 1926 the average annual return has been about 10 percent.
Prior to the housing crash Ariel surveys showed that African-Americans were strong believers in housing wealth. They saw homes as stable investments.
But that has changed dramatically. In 2004, 61 percent said real estate was the "best overall investment." That fell to 30 percent in 2010 and was 37 percent in Ariel's most recent survey.
Meanwhile, the percentage of blacks saying the stock market is the "best overall investment" jumped from 28 percent in 2004 to 41 percent in the recent survey.