Are you wondering how you can help reduce the wealth gap? Start with these investment tips.
From the companies we choose to support to the organizations we invest in and the individuals we learn from and work with, our daily financial actions can be small steps towards meaningful social impact. Money is a source of power, and using that power is one of the many ways we can find meaning and purpose in our lives. And while no action can correct the mistakes that have worsened over time and continue today, for those who want to be a part of driving sustainable change, you can do so by actively investing in racial justice. Here's how to do it.
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Why does investing affect things?
Samantha Gorelick, a CERTIFIED FINANCIAL PLANNER professional at Brunch & Budget in Brooklyn, New York, says investments of all kinds in black-owned companies and color communities have always been the catalyst for change. She notes that historically, improvements in the justice of the race were made only if it did not go to the economic cost of the economic powers. Still, "when the white powers began to lose money – see the Montgomery bus boycott, for example – the whites felt stimulated to make further political changes."
When companies feel society's demands for change in the wallet, are more likely to participate. And we all have the power to meet that demand every day by consciously deciding how we invest and spend our money.
Five ways to invest for racial justice
Investing in black-owned companies
Investing in the stock of black-owned companies can support the valuation of these companies, which ultimately helps them to collect and grow. However, finding and researching individual publicly owned companies to invest in can be time consuming and limit the diversification of your portfolio. Fortunately, there are a growing number of Racial Justice mutual funds in the investment space.
These funds aim to focus investments on black-owned companies and those companies that have a strong racial and ethnic diversity policy in place. When considering a fund like this, it is important to look at its individual holdings, as well as the method for which these companies were chosen.
Gorelick states: “A company can be part of a portfolio to do only the smallest, and unfortunately this can be better than what comparable companies do. Understanding this limitation is important when judging if this is something that makes you feel better about where your money is going. "
Investing in these funds and pushing for better methods of building them is a positive force," says Gorelick. The more people invest in such funds, the more pressure companies will have to change their practices.
Exploring crowdfunding to start new businesses
Racial Justice funds are a way to support public companies, but you can also support small and new businesses through crowdfunding or angel investments.
According to the American Express & # 39; State of Women-Owned Business report from 2019, black women represent 42% of the new women-owned businesses net started in the past year. But in the last decade, black women-led companies received only 0.0006% of the total venture capital. iFundWomen of Color is a crowdfunding platform launched in January 2020 to help close these funding gaps.
Alternatively, angel investment allows you to buy start-ups. The risk is much higher when it comes to these investments, as companies are often unproven, but the payout can also be high.
You used to need a large sum of money as an angel investor. But today, services like Republic allow you to invest in tech startups for as little as $ 10. Although not all start-ups in the Republic are owned by blacks, the platform encourages and supports business with founders who are not traditionally served by venture capital markets. It also lists companies that are black-owned or focused on social good to make them easy to find.
According to a report from 2019, black women represent 42% of the new women-owned companies that started net in the past year. In the last decade, however, black women-led companies received only 0.0006% of the total venture capital.
Think about your real estate investment strategy
Real estate investors have long been attracted to lower-income neighborhoods where they felt they could gentrify – higher prices and potential returns. But gentrification has a bad rap for a reason: It rarely benefits the families who already live in these communities.
Lisa Phillips, founder of Affordable Real Estate Investments, helps black professionals invest in mostly black neighborhoods without participating in gentrification. Phillips says she encourages investors to "be a good manager." Instead of just raising rents because you can, and possibly removing the last affordable place in that price range in the city, ask yourself, “Are you going to be part of the change that is moving black families or giving them a place? to live and nurture society?
This heart-centered method is not just about being a positive source of change. Phillips often finds that this can actually be more profitable in the long run, as it leads to tenants staying and maintaining a property, as opposed to you bearing the costs that come with high turnover.
Phillips also strongly encourages investors to take the time to deeply understand the culture and history of a neighborhood before investing. Fail to do so, says Phillips, and “what you get is a push out instead of an integration in our neighborhoods. You have to be intentional.
Transfer some of your savings to a black-owned or local bank
The banks' lending methods determine which families and companies receive financing and at what prices. Moving some of your money to black-owned and / or locally-owned banks that are actively reinvesting in your community can lead to greater funding for people of color and people with low to moderate incomes.
But using these institutions can also benefit your personal finances.
Tasha Cochran, a lawyer and personal finance expert who previously worked at FDIC, which regulates community banks, shares that while larger banks strive for volume – and thus have stricter lending standards – you can build a closer relationship with a community bank
"They know you and your specific financial situation, so they are more willing and able to create customized financial solutions for your specific needs, "says Cochran. Because Community banks tend to hold their loans instead of collecting and selling them from their balance sheets, these banks share the risk next to you. It is a high-performing, symbiotic, long-term relationship.
Review where you spend your money
Whether you have assets to invest for social impact or not, you spend money almost every day. Where you buy food, gas, clothes and entertainment. Who you hire for improvement work, tax accounting or financial advice. Each of these decisions is an opportunity to take positive action to close racial wealth gaps.
Take the time to review your spending and consider the organizations and companies you choose to support. Are there options that allow you to move your expenses to black-owned or actively anti-racist companies?
This process takes some research and can feel overwhelming at first, especially if you are trying to look at all your costs at once. Remember that the goal is sustainable change and that you do not have to move everything at once.
Set a goal to go through your expenses and move a recurring cost to a business owned by a colored person. For example, buying books at a local, black-owned bookstore rather than from a particular e-commerce monolith. Then set an alarm in your calendar to review and make a new change next month.
By adapting your spending to your values, you choose one of the most direct ways to create a wave of change.
Make Consistent, Sustainable Change to Support Racial Justice
Consciously controlling how you spend your money can begin to close racial wealth gaps as we strive for broader social change.
Nevertheless, one of the most positive steps we can all take remains to invest in understanding our own prejudices and choosing to be an active anti-racist in all areas of our lives. Reading books and taking courses to understand our own role, listening to leaders in the racial rights movement and speaking out when we see injustice are all good places to start.
The gaps created over the centuries cannot be closed overnight, but given where we have power – such as how we spend our money – can drive much-needed change.
About Chelsea Brennan
Chelsea Brennan is the founder of Smart Money Mamas, a personal finance blog that focuses on family financing, investing and reducing money stress. Chelsea is a former hedge fund investor whose work has appeared in a wide range of publications, including Forbes, Business Insider and more.
Read more by Chelsea Brennan
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