Wall St. and Business Wednesdays: 2003 Ariel-Schwab Poll Reveals Black Flight From Stocks
The recent bear market drove a significant percentage of African- American investors out of the stock market in favor of real estate and more conservative investments, including keeping more money in cash, according to the sixth annual Ariel-Schwab survey of Black and White households earning over $50,000 annually.
After five straight years of steady increases in the percentages of African-Americans who own stocks, only 61% of Blacks had money in' the stock market last January and February when the survey was conducted. This is down from 74% last year and approaching the 57% level of Black stock ownership in 1998, the first year of the survey. White stock ownership, meanwhile, is at 79% this year, which is virtually unchanged over the last six years.
Ariel President Mellody Hobson said the new survey indicates that after experiencing their first bear market, and an especially severe one, many black investors retreated to their conservative bias. "The recent gains African-Americans have made to become more active stock investors have largely been erased by our more conservative investing tendencies as the market has dropped. This current rally offers some hard lessons to people who pulled out," Hobson said.
Rising Unemployment Is Key Factor Stifling Black Investment
Today's unemployment rate, now at a nine-year high of 6.1%, and twice as high for Blacks than Whites (10.8% vs. 5.4% U.S. Dept. of Labor), is one of the key factors driving Blacks out of the stock market. Blacks were more likely than Whites to say they would start investing or invest more in stocks if there were "a drop in the unemployment rate" (52% Black versus 43% White). Among all those surveyed, the biggest reasons to start investing or invest more in stocks are rising household income levels (71% of Blacks and 73% of Whites) and, "a perception that the market is turning around." (62% of Blacks and 67% of Whites.)
Corporate scandal is also on everyone's radar with 53% of Blacks and 58% of Whites saying they would start investing or invest more if, "Executives get punished for wrongdoings..." Also, more Black investors than White investors (52% versus 44%) consider, "More government regulation of corporations," a reason to start investing or invest more in stocks. On the other hand, last January and February, prior to the war in Iraq, 56% of Blacks and 48% of Whites said that, the "peaceful resolution of the war," would prompt them to start investing or invest more, which may be a factor in the current rally.
Given all of the above, it's not surprising that over half (52%) of both Blacks and Whites characterized their current investing strategy as "being on the sidelines." Schwab Vice-President Carla A. Foster said, "A myriad of factors chased many investors - Black and White - from the stock market. Yet the recent market upswing shows that you may have to go through some valleys to reach the peaks. It's important to be patient, keep a long-term view and stay invested."
Home Is Where the Money Is: Whites, Like Blacks, Now Favor Real Estate Not surprisingly, with interest rates at 35-year-lows, White attitudes toward real estate investing are now approaching Black historical preferences for real estate investing. This year, 50% of Blacks and 44% of Whites call real estate "the best investment overall," compared to 49% of Blacks and just 31% of Whites last year.
Moreover, for the first time, the survey directly asked which is the "better investment" - home improvements or stocks - and 76% of Blacks and 61% of Whites chose home improvements, while only 20% of Blacks and 33% of Whites chose stocks.
Among investors, 25% of Blacks and 31% of Whites sold some of their stocks or mutual funds in the past year, though the survey suggests that very few Whites cashed out completely. The survey found that younger, lower-earning Blacks are the most likely group to have left the market. Additionally, 48% of Blacks and 27% of Whites planned on shifting more of their portfolios into cash.
Ms. Foster said, "Many investors have moved assets into cash or real estate, including their home. While most Whites simply diversified, some Blacks got out of stocks altogether. But as we've seen with the current market rally, you also need to be invested in stocks, bonds and mutual funds to benefit from the future growth of the economy."
Bear Market Has Shaken Confidence of Investors
The bear market of the past two years, the worst since the Depression of the 1930's, has also left investors decidedly less confident in the stock market. The percentage of Blacks who agree that, the stock market continues to be the best place for long-term investing, has plunged from 67% to 46% since 2001, while the percentage of Whites agreeing with this statement has dropped from 82% to 62% since 2001.
Meanwhile, Blacks who, just don't trust the stock market with [their] money, rose to 49% this year, compared to 38% last year. For Whites, 33% don't trust the market today, compared to 25% last year.
Time will tell whether investor confidence in the market can be fully restored, but the current rally should boost investor spirits. We just need to keep reminding investors that, despite all the ups and downs, the stock market is historically the best investment, said Hobson.
On a positive note, 82% of Blacks and 89% of Whites remain optimistic about their financial future.
Ariel Capital Management Inc. is a Chicago-based investment firm managing over $12 billion in assets. Ariel serves institutions as well as individuals through the Ariel Mutual Funds. Ariel and Schwab are separate entities, but co-sponsor the Black Investor Survey. Ariel's web site is www.arielmutualfunds.com. Ariel Distributors, Inc. The Charles Schwab Corporation (NYSE:SCH), through Charles Schwab & Co., Inc. (member SIPC/NYSE), U.S. Trust Corporation, CyberTrader and its other operating subsidiaries, is one of the nation's largest financial services firms serving 8 million active accounts with $798.2 billion in customer assets through offices, regional client telephone service centers and automated telephonic and online channels. The Charles Schwab, U.S. Trust and CyberTrader sites can be reached at www.schwab.com, www.ustrust.com and www.cybertrader.com, respectively.
Note: The random sample survey of 500 Blacks and 500 Whites households earning more than $50,000 annually is the sixth for Ariel-Schwab. It was conducted by telephone between January 22 and February 17, 2003 by Argosy Research.
Wednesday, July 2, 2003