COVID-19 Sprouts Increased Need For Impact Investing. 10 Tips For Black Investors Before Making Such Transactions
Black Americans—arguably more so than other groups—have been beaten down during the last year. Facing everything from financial and health devastation from COVID-19 to systemic racial inequality that still lingers today, Blacks most certainly have had their fill.
Yet, those challenges perhaps bring new options for Black Americans to consider when it comes to impact investing. Some experts concur COVID has produced a greater need for investments in social and environmental causes. Simultaneously, investors would do well to be cautious as the fickle economic climate caused by the crisis could make such investments risky financially.
Finder.com has created a conscientious guide helping individuals generate a social and environmental impact while delving into potential financial returns from investing in social justice. A financial comparison site, finder.com, claims to help consumers make the best decisions when it comes to handling their money. It examines financial products like credit cards and various loans, to name a few.
Black Enterprise caught up with Sheri Bechtel, Finder’s share trading and investments editor, to get her take on why Black Americans might want to consider making such investments.
She says building generational wealth can be a motivating factor in why Black American individuals and businesses would start investing. Investing now also presents an opportunity to pass down learned experiences. She added a study by FINRA—the Financial Industry Regulatory Authority—noted that Black Americans tended to score lower when it came to financial literacy.
“So not only is it an opportunity for a gain of financial value, but you are also investing in the meta stock of transferable knowledge,” Bechtel says.
She also reflected on what type of returns investing in social justice could bring versus investing in more traditional asset classes like stocks or real estate.
Beyond the financial returns of supporting minority-owned businesses, there is the sense of putting your money where your mouth is and helping BIPOC-owned companies get off the ground and thrive. According to a chart from M1 Finance, Black-led companies saw a return of almost 68% based on a $100 initial deposit, Bechtel pointed.
So what are specific social justice investments out there by name that support Black communities people might want to consider?
Bechtel talked about a couple. She says one is the Impact Shares NAACP Minority Empowerment ETF (“NACP”), which tracks companies that empower minorities. This could be through hiring practices and benefits, as well as products and services. The ETF has returned 7.92% over the past three months.
Another she suggested is Urban One (“UONE”), the nation’s largest Black-owned broadcasting company. She says the stock has gained nearly 50% in the past three months.
For potential investors. Finder.com offered 10 ways to invest in social justice:
1. Invest in businesses owned by marginalized communities.
Use your money to directly support companies and initiatives that support social and racial justice. By investing in BIPOC-, LGBTQI- and women-owned businesses, you can help build community wealth.
Research individual stocks that share your social values and have a strong potential for returns.
2. Work with an investment adviser who understands your values.
Collaborating with an investment adviser that holds similar personal and moral values can make it easier for you to find socially responsible investments. So when your company puts social equity above all else, you don’t have to choose between greater returns and community impact.
3. Invest in crowdfunding campaigns for BIPOC-, LGBTQIA- and women-owned startups.
If you prefer to get in on the ground floor before companies are publicly traded, opt to invest in BIPOC-, LGBTQI- and women-owned companies seeking funding. Explore different campaigns, dive into company missions and support founders whose values and goals resonate with you.
4.Invest in ETFs that support racial and social justice.
Instead of investing in individual stocks, another option is to invest in carefully curated groups of securities called exchange-traded funds—or ETFs—that focus on social justice investing.
Shannon Terrell, an investments expert at Finder, explains: “Think of them like investment baskets — a single ETF may contain any number of stocks, bonds or additional assets, which means purchasing one may help diversify your portfolio.”
For investors interested in supporting racial justice, the Impact Shares NAACP Minority Empowerment ETF (NACP) may do the trick. It’s the first and only ETF that advocates for racial equality by including companies that meet social criteria defined by the NAACP and tracks the Morningstar Minority Empowerment Index.
“This is a direct opportunity for investors to support racial justice organizations, as this nonprofit fund donates all net advisory profits to the NAACP,” says Terrell.5. Invest in large companies leading the way in support of social justice.
Larger public companies are making strides to support social justice. These intentional steps to fight racial and gender inequality can start with a pledge to donate funds to racial equity organizations, support community programs and fund BIPOC-, LGTBQ- and women-owned small businesses.
6. Join a peer-to-peer lending platform that works with underserved businesses.
Consider peer-to-peer (P2P) lending companies that let you lend money directly to other people.
Anna Serio, a certified commercial loan officer and Finder’s lending expert, tells us: “Many platforms allow you to see the business’s grade rating, which is based on its creditworthiness — not its impact on the community. But peer-to-peer lending platforms put you in control and let you choose where your money goes.”
But keep in mind the risk involved with this type of investing: The business or person may not be able to repay the loan. Both platforms try to minimize risk by giving investors as much information about the business or person you’re funding before agreeing to the loan. Another tip is to diversify your portfolio by dedicating no more than 10% of your investment budget to P2P platforms.
7. Invest in real estate initiatives that build up the local community.
Tremaine Willis, an investment advisor at Mind Over Money, says he aims to “elevate the quality of life in an area while maintaining affordable housing options for the existing population.” Platforms such as Buy the Block provide people with opportunities to own a part of their community by spreading financial responsibility across multiple investors.
8. Join a bank or CDFI that reinvests profits into underserved communities.
Consider a Black-owned bank — like OneUnited Bank, which reinvests profits in the local community “through low to moderate home loans, SBA loans, personal lines of credit and financial literacy programs,” according to Kevin Cohee, CEO of OneUnited. Or look into women-owned banks like the Banccentral National Association and Santa Anna National Bank, which invest 76% of every dollar you deposit back into the community — 69% above the industry average.
9. Take a closer look at where you spend your money.
Investing in racial justice can be as simple as skipping the big-box stores to shop at local, BIPOC- and LGTBQ+-owned businesses instead. Spend your dollars responsibly by asking questions about the business’ racial equity policies. Check out a company’s website and social media to explore its values and how it aligns with your morals and ethics. And research its Just Capital ranking, which evaluates how each company cultivates a diverse and inclusive environment without discrimination.
10. Invest in understanding your own biases.
Do more to make a change by investing in yourself. Make a conscious effort to identify and understand your own biases and make changes to support the social justice movement in all areas of your life. One way to uncover, understand, and dismantle racism is by reading, learning, and listening to more powerful voices. You don’t need to choose between investing for profitable returns and promoting social justice. Learn more about investing and tweak your overall strategy to support socially responsible companies and fight for social equity.
