Author Topic: Difference In investing between wealthy white and black Americans  (Read 3621 times)

Cinder

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http://qz.com/303318/how-wealthy-black-americans-invest-their-money-differently-from-rich-white-americans/

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It turns out wealth is not a great equalizer—at least not when it comes to investing your riches. A new study by Credit Suisse and Brandeis University’s Institute on Assets and Social Policy shows rich black Americans put their money to work very differently from rich whites.
Given the overall disparity in wealth levels between the two communities, it’s perhaps unsurprising that the 95th percentile of African Americans has a net worth—$357,000 and up—roughly in line with just the 72nd percentile of white Americans. The richest white 5% are 6.5 times wealthier than the richest 5% of black households.
And the difference isn’t just a matter of scale. Researchers used their own data and bits from the Federal Reserve’s Survey of Consumer Finances to examine the different contributors to each group’s net worth. They found that, on average, the black 5%—their sample was too small to examine the black 1%—allocate their money much more conservatively than white families worth the same amount.
That means putting money in certificates of deposit, life insurance and savings bonds instead of stocks and bonds, two asset classes that have done considerably well in the past few years.

The study also found that the wealthiest black families have more of their money tied up in different kinds of real estate rather than their own businesses, again reflecting a preference for steadier assets. (Greater difficulty accessing start-up money is likely another factor.)

The researchers touch briefly on the the reasons for such conservative investing practices, pointing not just at a lack of diversity in the financial services industry, but also the difficulty blacks families have in maintaining any sort of upward economic mobility.


Dodge

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Re: Difference In investing between wealthy white and black Americans
« Reply #1 on: December 02, 2014, 10:53:19 PM »
There are significantly more whites in the United States. All this means is some of the whites who had riskier investments, ended up with more money. This is what you'd expect based on the math, and doesn't say a thing about whites vs blacks in terms of investing style.

For all we know, whites are even MORE conservative on average than blacks, but only the whites who took big risks got into the top 5%!

This is pointless, and smells like linkbait.

sol

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Re: Difference In investing between wealthy white and black Americans
« Reply #2 on: December 02, 2014, 11:05:28 PM »
There are significantly more whites in the United States. All this means is some of the whites who had riskier investments, ended up with more money. This is what you'd expect based on the math, and doesn't say a thing about whites vs blacks in terms of investing style.

I'm totally not understanding what the race ratio in the US has to do with this. 

The excerpt makes it very clear that black families and white families of identical income levels invest differently.  It's not about riskier investments paying off, or how many black vs white families there are at any income level.  It's about the types of investments that black familes make (mostly CDs, savings bonds, and real estate) compared to equivalently wealthy white familes (mostly stocks and businesses).

Your reply sounds like you're jumping to defend against an accusation of racism, but there's no racism in the original post.  If anything, the link is saying that black families aren't investing very smartly and could learn from white families who take on more risk.

Dodge

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Re: Difference In investing between wealthy white and black Americans
« Reply #3 on: December 02, 2014, 11:48:41 PM »

There are significantly more whites in the United States. All this means is some of the whites who had riskier investments, ended up with more money. This is what you'd expect based on the math, and doesn't say a thing about whites vs blacks in terms of investing style.

I'm totally not understanding what the race ratio in the US has to do with this. 

The excerpt makes it very clear that black families and white families of identical income levels invest differently.  It's not about riskier investments paying off, or how many black vs white families there are at any income level.  It's about the types of investments that black familes make (mostly CDs, savings bonds, and real estate) compared to equivalently wealthy white familes (mostly stocks and businesses).

Your reply sounds like you're jumping to defend against an accusation of racism, but there's no racism in the original post.  If anything, the link is saying that black families aren't investing very smartly and could learn from white families who take on more risk.

"The excerpt makes it very clear that black families and white families of identical income levels invest differently."

This is correct. From the data, it does show the top 5% invest differently.

"If anything, the link is saying that black families aren't investing very smartly and could learn from white families who take on more risk."

This conclusion, however, cannot be made from this data, because it's based on the statistic that the top 5% white investors have a 6.5x higher net worth. You can't make a conclusion when the results of the strategy taken by the other group is based on chance, and they have a many times greater population.

For all we know from this data, whites have a 10x higher chance of going bankrupt due to risky investing, and therefore are worse off on average.

For all we know, both population groups invest exactly the same way. When one population group has something like 10x more people, that end of the bell curve will always be higher.

For all we know, the top 5% of whites got there by taking risks that only pay off at a rate of one in 50 million, so the sample size of blacks is too small to have any winners yet.

For what it's worth, I think your conclusion is correct, but we can't get there from this data.

sol

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Re: Difference In investing between wealthy white and black Americans
« Reply #4 on: December 02, 2014, 11:55:34 PM »
Okay, now I see what you're saying.  I interpreted this part a little bit differently than you did:
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They found that, on average, the black 5%—their sample was too small to examine the black 1%—allocate their money much more conservatively than white families worth the same amount.

I took that "worth the same amount" part to mean that they compared black families to white families of identical income.  I think you've understood it to mean that they compared the top 5% of blacks to the top 5% of whites, and I can see how you could interpret it that way.  In that case, I think your objection is totally valid.  Comparing the top 5% of people from two different income ranges isn't terribly informative.

Reading it a second time, I suspect that your interpretation is correct and the author just worded that part very poorly.  Quartz isn't exactly known for hiring writers with journalism or english degrees, who might have been a little more careful with their facts.

BEN_BANNED

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Re: Difference In investing between wealthy white and black Americans
« Reply #5 on: December 03, 2014, 05:38:42 PM »
This thread reminded of an article that was posted in a local paper a few years back.

The average Black woman only had a net worth of $5.
http://www.post-gazette.com/business/businessnews/2010/03/09/Study-finds-median-wealth-for-single-black-women-at-5/stories/201003090163

A few commentators had stated that is due to cultural difference between Blacks and Whites. They said that Blacks are more apt to use their money to buy social status items aka *bLinG* than Whites.