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| Some stocks, funds and real estate promote equality. | © Getty Images |
By Alana Benson, NerdWallet
Anti-racism protests have called for action and change in our police departments and other systems that have historically oppressed people of color — including the financial system.
In addition to joining those protests, donating to organizations that fight for racial justice or shopping at Black-owned businesses, you can put your investment dollars to work for the cause.
“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 are six ways to support racial justice with your investment portfolio.
1. Invest in Black-owned companies and funds that support racial justice
Kenneth
Chavis, a certified financial planner at Mercer Advisors in Scottsdale,
Arizona, 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.” Of course, small companies are also
known to be much higher risk, so as always, you'll want to vet your
investment carefully.
Unfortunately, there are only a handful of
these 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.
2. Explore peer-to-peer lending
Peer-to-peer
lending companies like 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 adds.
P2P 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.
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 months, 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.
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, their website and reviewing who is on their
team. “Spending your money with companies that are in alignment is
critically important,” says Aliche.
4. 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 on 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).
Investing
in startups and real estate crowdfunding carries a significant amount
of risk, and you may lose your entire investment. As always, do your
research before making any investment.
5. 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.
“I really like small, local banks,”
says Aliche. “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.”
6. Learn from and work with Black financial professionals
Working with a Black financial advisor
not only invests your money back into the community, it helps that
advisor continue adding their perspective to the predominantly white
space of financial advice. 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.
See more at NerdWallet
