Slump Has Heightened Distrust Of Stocks By
By Allison Bell
Financial advisors who sell variable annuities, variable life insurance policies and other stock-linked products may have to spend extra time this fall convincing African-American clients to see things their way.
“Many high-income African-Americans are retreating from the stock market,” according to the authors of the 2003 Black Investor Survey report.
Figures from the survey, which was sponsored by Ariel Mutual Funds, Chicago, and Charles Schwab & Company Inc., San Francisco, show that the share of high-income African-American respondents who say they dont trust the stock market with their money has increased to 49%, from 34% in 2000.
The share of African-Americans who told researchers that the stock market is the best place for long-term investing has fallen to 46%, from 67% in 2001.
The recent stock slump has also shaken the confidence of high-income white survey participants, but 62% still say the stock market is the best place for long-term investments. Only 33% say they distrust stocks, meaning white survey participants are still about as confident in stocks after three years of bear markets as African-American participants were while the Dow Jones Industrial Average was over 10,000.
Results from another major survey, the Minority Retirement Confidence Survey, which is sponsored by an affiliate of the Employee Benefit Research Institute, Washington, have shown that, in 2001, while the stock market was slumping, 37% African-American workers were so skeptical about financial institutions that they kept some of their retirement savings in “cash in a safe place at home or in a safe deposit box.”
A few very conservative financial advisors mistrust the stock market and recommend that clients plow cash into bonds, gold or solar-powered batteries. But the stock market has been doing better this year, and most mainstream advisors argue that, in the long run, investors will get the best returns if they make steady contributions to portfolios that include a high percentage of stock.
Debbie Stroman, a financial planner and marketing manager at Gateway Capitol Financial, Linthicum, Md., says she believes that, in the real world, African-American consumers have investment portfolios that resemble the portfolios of similar white consumers.
“A non-African-American might be exposed to more things,” Stroman says. “But they dont necessarily own the products.”
Results from the Minority Retirement Confidence Survey support the idea that African-American workers tend to have financial views that resemble the views of other workers with similar incomes, says Ruth Helman, research director at Mathew Greenwald & Associates Inc., Washington, the market research firm that conducts the survey.
Greenwald gathers enough income data to let researchers separate survey responses for participants with annual incomes under and over $35,000.
African-Americans with incomes under $35,000 are more likely to report owning life insurance, but “other differences tend to disappear once you hold income constant,” Helman says.
Making apples-to-apples comparisons is difficult because, for one thing, published survey results comparing the financial product buying patterns of African-American consumers with those of other consumers are scarce. Few insurers, insurance trade groups or marketing firms break out insurance purchasing information by race.
Even the Ariel/Schwab survey series, which includes participants with a minimum annual household income of $50,000, ends up with pools of African-American participants that are much different from the pools of white participants.