Black households try to close wealth gap by chasing higher returns

I know the entire premise of investing is to someday be like Warren Buffett, the Sage of Omaha. While you can dream of such a lofty goal, you can still do pretty well for yourself when it comes to investing.

As a certified financial planner, I often have to explain to clients why it's not actually the best idea to increase your risk tolerance to overcompensate for a retirement savings shortfall. And although the retirement savings crisis in this country affects everyone, I tend to see the scenario even more commonly with black investors who are between ages 40 and 55.

I regularly have to address those black clients, playing catch-up, who ask, "How aggressive can I be with my portfolio?"

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Although stockbrokers from the 1980s would be licking their chops at a potential sale, to a fiduciary financial planner, this is a big no-no — and more importantly, a teachable moment.

The most important thing for black investors in this scenario to remember is that you're not alone.

The average black household has around $19,000 in liquid retirement assets, whereas a white family's nest egg is closer to $130,000. Homeownership levels are not any better, according to the "Social Security and the Racial Wealth Gap" report from the National Academy of Social Insurance . The typical white household, aged 47 to 64, has housing wealth of $67,000, while the typical black household in this same age group has no home equity whatsoever.

Increasing your risk tolerance to overcompensate for a savings shortfall is a very dangerous game to play. While we are enjoying what might potentially be the longest bull market our country has ever seen, we can't forget the hardships so many investors faced in 2008.

That's why getting professional financial help is more important than ever. It's all too easy to make an emotional decision based on a news headline or by worrying about recent market volatility. To that point, a financial professional can guide you and help you build an allocation by focusing on your cash flow needs over the next five to eight years.

As counter-intuitive as it seems, when someone is behind in their retirement savings, they're often tempted to risk it all. You may not have much saved for retirement … but that makes what you do have even more vitally important.

So instead of going all in on the latest investment fad (whether it's Bitcoin or cannabis investing), it's still imperative to have a properly diversified portfolio.

Instead of being a casualty of taking on more risk than you can bear, I urge my clients to try increasing their household savings rate instead. The fact is that most of us aren't saving very much at all.

Ideally, we like to see our clients begin by saving 10% to 15% of their gross income in their 20s and 30s and work their way up incrementally as time progresses. However, if you fall behind, you could try jump-starting the process at 20% or even 30% if you can.

So when you get the urge to chase higher returns and risk your portfolio to overcompensate for not saving, take a step back and a deep breath. Sometimes, staying within your comfort zone is a good thing.

— By Malik Lee, managing principal at Felton & Peel Wealth Management

Check out 5 Money Lessons Everyone Should Know by Age 30 via Grow with Acorns+CNBC .

Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.



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