How to Invest in Black-Owned Stocks and Other Investments
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Some Black-owned stocks include RLJ Lodging Trust (RLJ), Urban One, Inc. (UONE) and Global Blood Therapeutics, Inc. (GBT).
Some investors may choose to support companies that donate money to support racial justice.
You can also explore Black-owned banks.
In addition to donating to organizations that fight for racial justice or shopping at Black-owned businesses, you can put your investment dollars to work, too.
“What comes after protests is money, and money is what will make change sustainable,” says Tiffany Aliche, a financial educator and founder of The Budgetnista.
Here's how to support racial justice with your investment portfolio.
How to invest in Black-owned businesses
1. Decide how much investing help you want
A. Get help through a robo-advisor
If you're a beginner, investing can be daunting, but you don't have to go it alone. Robo-advisors are automated investment services that use your data to build a portfolio that's catered to your age, risk tolerance and other personal factors. They're often far cheaper than working with a traditional financial advisor.
Here are some robo-advisors that offer portfolios that include some form of minority empowerment-related investments:
Wealthfront offers a portfolio built with ESG ETFs. You can also add an ETF that specifically supports racial justice.
Betterment offers a Social Impact Portfolio that includes an ETF that supports racial justice.
» Check out our roundup of the best robo-advisors for socially-conscious investors
B. Invest on your own
Investing by yourself has some benefits: You get full control of where your money goes and you'll only pay the fees associated with the investments you choose, versus paying an additional management fee. But investing in individual stocks tends to carry more risk than investing in more diversified investments such as funds, and it requires more legwork. Keep reading to figure out what else you'll need to invest in Black-owned stocks on your own.
2. Choose an investing account
If you want to invest at all, you'll need to have a brokerage account to do so. A brokerage account is just where your investments live; once you open an account, you're not invested until you actually buy the securities that will reside there. Choosing your account is just as important as choosing the investments themselves. Some accounts have specific tax benefits that can help you save money over the long haul. Learn which investment account is right for you.
» Check out our roundup of the best online brokerage accounts
3. Research Black-owned businesses
To invest in a company on the stock exchange, that company has to be publicly owned. The National Minority Supplier Development Council (NMSDC) states "ownership by minority individuals means the business is at least 51% owned by such individuals or, in the case of a publicly owned business, at least 51% of the stock is owned by one or more such individuals (i.e. the management and daily operations are controlled by those minority group members.)"
And while the NMSDC does not explicitly state how many Black-owned public companies there are, many companies are transparent with who is on their executive board. For our definition, we included companies with a Black CEO or president, as well as those with majority Black ownership.
Here are a few Black-owned publicly traded stocks:
RLJ Lodging Trust (RLJ)
Urban One, Inc. (UONE)
Global Blood Therapeutics, Inc. (GBT)
Carver Bancorp, Inc. (CARV)
Note: We excluded any "penny stocks" from this list, or those that are trading for less than $5 per share, as they tend to carry more risk.
Kenneth Chavis, a certified financial planner and senior wealth manager at LourdMurray, says investing in stock of Black-owned companies can have two major advantages for investors: diversification and the potential for strong performance.
Diversification — which involves spreading your investment portfolio across companies of different industries and locations — is key to reducing risk in your portfolio, as is choosing companies of different sizes. As Chavis notes, small companies are often known for their growth potential.
“Keeping in mind that some of the Black-owned companies are smaller, there is a ton of research that shows that over long periods of time, on average, the probability that a smaller company will outperform the average large company — or just the broad market — is extremely high,” says Chavis.
Small companies are also known to be much higher risk, so as always, you'll want to vet your investments carefully.
Minority empowerment ETFs
There are only a handful of Black-owned stocks listed on public exchanges, and weeding through individual stocks to build a portfolio requires research and expertise. So another option is to use your dollars to invest in mutual funds or exchange-traded funds that will do that work for you.
The NACP ETF tracks the Morningstar Minority Empowerment Index and provides exposure to companies that meet the NAACP’s guidelines (though the fund itself is not sponsored, endorsed or promoted by the NAACP). Plus, all net advisory profits from the fund’s management fee are donated to the NAACP. There is also a growing number of ESG funds, or funds that are graded using environmental, social and governance criteria.
3. Invest in companies that financially support racial justice
You can reward public companies that donate money to support racial justice with your own investment dollars. Over the last few years, several large corporations have pledged money toward anti-racism efforts. By investing in companies that are committed to putting their money where their mouth is, you are letting those companies know you support their decisions. You can also see if they have a corporate social responsibility, or CSR, initiative that is supporting local communities.
Remember, too, that “spending money is investing money,” says Aliche. "You might not be seeing a return if you're not an actual stock shareholder, but you're putting money into those companies."
Before spending your dollars, she advises looking at a company's social media, its website and reviewing who is on its team.
“Spending your money with companies that are in alignment is critically important,” Aliche says.
Other ways to invest in racial justice
Traditional investment vehicles such as stocks and ETFs aren't the only way to support racial justice. Here are some non-traditional investing methods you can explore. Just keep in mind, these non-traditional methods should be looked at carefully, and no investment is guaranteed to make you a return.
Check out peer-to-peer lending
Peer-to-peer lending companies, such as SoLo Funds, give people who have historically been overlooked by financial institutions and traditional loan programs the ability to access capital. SoLo borrowers can set the terms of their loan themselves, and there is no formal approval process. Lenders earn “appreciation tips,” and there are no minimum requirements, so you can get started with any amount.
The benefit of peer-to-peer lending, Chavis says, is asset class diversification: P2P loans are typically not correlated to the stock market.
“It's also a good way to help disadvantaged communities get access to capital, either for business reasons or personal reasons,” he says.
Peer-to-peer lending comes with one main risk: There is always a chance the borrower may not be able to repay the loan. SoLo attempts to counteract this by providing every borrower a “SoLo score,” which acts as a platform-specific credit score and is based on your initial registration and how you handle your loans. To further reduce risk, Chavis strongly advises diversifying the loans you offer by lending to multiple people and allocating no more than 10% of your overall portfolio to this practice.
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Explore startups or real estate crowdfunding
You may not have angel investor status yet, but you can still invest in some cool startups that aren’t yet publicly traded. Republic allows investors to find emerging businesses and get in on the ground floor for as little as $10. The site also lets you filter listed businesses to those with Black founders (as well as to those with female founders and other socially responsible investing criteria).
You can also invest in real estate (and in some cases, the businesses those buildings will house) with Buy the Block, a crowdfunding platform that is all about providing people with an equity stake in their communities and working to stop gentrification. You can invest in Buy the Block for a minimum of $100 (which is significantly less than most real estate crowdfunding platforms). Many of the projects listed on Buy the Block are in historic Black neighborhoods or benefit a local Black community, such as markets that aim to bring produce grown by Black farmers into food deserts.
As always, do your research. Investing in startups and real estate crowdfunding carries a significant amount of risk, and you may lose your entire investment.
Rethink your bank
If your current bank doesn't meet your needs, consider a Black-owned bank. According to a 2019 FDIC study, minority deposit institutions originate a greater share of their mortgage loans to minorities than non-MDIs. Some are also designated Community Development Financial Institutions, which means 60% of their financing activities are targeted to low- and moderate-income populations.
» See NerdWallet's list: Black-owned banks and credit unions across the U.S.
“I really like small, local banks,” Aliche says. “Put your money toward banks that are reinvesting back into the community where you are, and don’t be afraid to ask what initiatives they have for the African American community. Even if it’s not an African American-owned bank, they might have more community-focused initiatives than a larger bank.”
Learn from and work with Black financial professionals
Working with a Black financial advisor is another option. You can find a directory of Black financial advisors through the Association of African American Financial Advisors.
You can also opt to invest and get financial guidance through a Black-owned investment platform. For example, Freeman Capital is a Black-owned and founded investment platform that recognizes that the wealth gap is hurting women and people of color, and offers everything from automated investing to consultations with CFPs.
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