Racial inequality and injustices have been in the news a lot since the summer of 2020. Uncomfortable as these topics can be, the inequalities in our society are clear and apparent, leading many to wonder what they can do to make a difference.
As an average investor, what power do you have to effect change and bring racial equality into the equation?
It turns out your investment strategy can be a major force in the push for change in racial equality across the United States and beyond.
How to Fund Racial Justice With Your Investments
One of the biggest ways you can effect change with your investment choices is to take part in a strategy known as impact investing — specifically impact investing designed to afford urban communities with the same opportunities afforded to white communities, also known as socially responsible investing.
By maintaining an investment portfolio that’s focused on generating returns while funding social health through the support of racial equality, you’ll not only enjoy monetary gains, you’ll sleep well at night knowing you’ve lent a helping hand in the fight against racial injustice.
1. Invest in Companies Serving Urban Communities
As a result of systemic racism, communities of color aren’t afforded the same opportunities in many ways.
Many of the publicly traded companies that serve minority communities are largely ignored by retail investors, institutional investors, and asset managers. But that doesn’t mean that they don’t represent strong opportunities for growth.
Companies that serve Black communities include:
Affordable Housing Stocks
A major source of racial inequality in the United States is found in the housing space.
According to USA Facts, Black Americans are the least likely consumers to own a home; much of this is the result of a lack of opportunity, leading to low income.
There are several publicly traded financial institutions and construction companies with a focus on the provision of affordable housing, and growth in these companies will help to shrink the divide between Black and white homeowners.
The vast majority of talking heads you see on the news are white. The lack of Black representation in the media means the needs of Black communities don’t become well-known — after all, you can’t solve a problem you don’t know about.
By investing in Black media companies, you’ll give minorities a stronger voice, which will ultimately result in a better quality of life within these communities.
One of the biggest opportunities people of color miss out on is a quality education.
According to the Postsecondary National Policy Institute, although college enrollment is up among African American students, they are not equally represented at different institution types.
Black students only make up about 12% of the student population in public institutions and 13% of the student population at private nonprofit institutions, but 29% of the population at private for-profit institutions.
Only 15% of college-educated Black students attended a highly selective college, with only 8% attending an elite research institution. Moreover, only 29% of African Americans aged 25 to 29 hold a bachelor’s degree or higher, compared to about 45% of white Americans in the same age group.
Without a quality education, members of minority communities may struggle to gain the skills, certifications, and employment opportunities they need to earn significant income and become successful.
By investing in urban education companies, you’ll help support the improvement of educational systems within these communities, helping to solve one of the biggest problems in the racial inequality conversation.
Pro tip: You can earn a free share of stock (up to $200 value) when you open a new trading account from Robinhood. With Robinhood, you can customize your portfolio with stocks and ETFs, plus you can invest in fractional shares.
2. Invest in Companies With Management and Board Members of Color
Publicly traded companies with Black owners, management teams, and board members will also help to cure the racial divide in the United States for multiple reasons:
- Income Divide. The highest-paying positions in Black-owned companies and those with diverse leadership boards are held by minorities. As a result, supporting companies that put minorities in high-income positions will help to alleviate the Black-white income divide across the United States.
- Addressing Minority Needs. Large companies serve the masses, and large companies owned and managed by whites are likely to create products and services that cater to the white population. By investing in companies with owners and management teams of color, you’ll be supporting organizations that are more likely to address the needs of minorities with their products and services.
- Creating Opportunity. By investing in companies with diverse managers and that value diversity, you’ll be supporting businesses that are more likely to provide quality employment opportunities to minority applicants who may not have had access to these high-paying opportunities otherwise.
3. Invest in Companies That Support Charities and Causes That Benefit Urban Communities
Impact investing is centered around environmental, social, and corporate governance (ESG) concerns.
ven companies that don’t expressly cater to Black communities or have many minorities in leadership positions have the ability to affect major social change by making equitable donations to nonprofit companies that serve Black communities.
Beyond donations to nonprofit charities serving urban communities, some of the largest companies in the United States have launched social awareness campaigns related to racial equity. Some of the most significant campaigns and contributors include:
- Nike. Nike flipped its famous tagline, “Just Do It,” on its head, spending millions to run an ad based on the tagline, “For Once, Don’t Do It.” The ad urged consumers not to ignore the racial divide in the United States and not to turn their back on racial diversity. Instead, the ad urged consumers to make a change to cure racial inequity, promoting the idea that nobody wins until everybody wins with the hashtag #UntilWeAllWin.
- Walmart. Walmart announced its commitment to set $100 million aside to be donated through the newly formed Center for Racial Equality. These donations will be made to nonprofit corporations focused on solving social justice issues across the country while providing a better quality of life within African American communities.
4. Invest in Funds That Support Racial Justice
There are plenty of investors out there who don’t like the idea of picking their own individual stocks. After all, there’s quite a bit of research and time commitment that goes into choosing investments this way.
However, even if you don’t choose individual stocks based on their social merits, you can still choose to invest in diversified funds that support racial equality.
In 2018, the first exchange-traded fund (ETF) focused on racial empowerment was launched. The fund, known as the Impact Shares NAACP Minority Empowerment ETF (NACP), only invests in companies that are geared toward solving the racial divide across the United States.
Although there aren’t many ETFs focused on racial justice at the moment, the Impact Shares NAACP Minority Empowerment ETF has seen a compelling performance, growing from under $23 per share in June 2020 to more than $34 per share by September 2021.
It’s hoped that their success will encourage more funds, especially those that focus on quality ESG scores, to follow the racial justice theme.
5. Look Into Crowdfunding Opportunities
Thanks to the incredible technological advancements that have been made over the past few decades, you don’t have to be an angel investor to own a piece of private equity.
Moreover, making small investments in the right opportunities could make a much larger impact on racial justice than you think.
A quick search for “crowdfunding platforms” online will yield a long list of companies that give you the ability to invest in small startups with big ideas. As you browse through the available companies, you’ll learn about their goals, management teams, finances, and more.
There are plenty of new companies being born every day that are owned by, managed by, and cater to minority communities.
As a crowdfunding investor, you can tap into the growth of these companies while supporting their advancements in racial justice with investments of as little as $10. You might even find Black-owned startups that cater to minorities right in your community that you can support directly.
Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.
6. Consider Peer-to-Peer Lending
A well-diversified investment portfolio will include more than stocks and private equity asset allocation.
Although peer-to-peer lending is a relatively new investment strategy, it is a model that’s gaining steam because it’s returning incredibly strong yields for those who take part.
As with crowdfunding, when investing as part of a peer-to-peer lending program, you’ll have the ability to learn about the borrowers for whom you decide to fund loans. Often, peer-to-peer lending platforms will even provide investors with pictures of the people who are asking for loans and what they plan to do with the funding.
By funding loans for minorities, you’ll be providing these borrowers with access to credit and capital they may not have had otherwise.
With debt and the proper management of debt being an important part of financial growth for the average American consumer, funding personal or small-business loans for minority borrowers is a great way to lend a helping hand in the fight against racial injustice.
7. Work With Financial Professionals of Color
Only 5% of financial advisors in the United States are Black, according to the American College of Financial Services. Even so, with hundreds of thousands of personal financial advisors and certified financial planners out there, plenty of them are of minority heritage.
By working with a personal financial advisor of color, you’ll be doing two key things:
Help to Address Income Inequality
One of the biggest disconnects between races is income.
According to the Economic Policy Institute, wage gaps across the United States are growing, with the Black-white wage gap among average consumers reaching 26.5% in 2019. That means, on average, a white person is likely to earn 26.5% more than a Black person with the same job.
Much of this comes from a lack of access to affordable, quality education among minorities. However, the story on income goes deeper.
Many minorities who do achieve a higher level of education still find the task of landing a good job or getting potential customers to believe in their new business difficult. By hiring professionals of color to help with your investing ventures, you help to reduce the income gap between whites and minorities.
Invest From a Minority’s Point of View
Investing with financial professionals of color means you can benefit from their perspective on your investment options, both in terms of returns and the social impact you may want to achieve.
Because they know the issues they faced growing up, through college, and in their careers, financial professionals of color will likely look to help people in their communities through their investments and the advice they give their customers.
Investment decisions should never be made solely based on the fact that a company is Black-owned, caters to minority communities, or for any other single reason.
However, there are plenty of minority-owned and -operated businesses that could benefit as greatly from your investment as your investment will benefit you in the long run.
As with any other investment, investments aimed at funding racial justice should be carefully thought out, well-researched moves.
By looking into what the companies you invest in are doing and ensuring that their activities are helping to cure social inequalities rather than exacerbate them, you’ll sleep well at night knowing your investments are making a difference.