Black investors are much more optimistic about the economy than is the broader investment community, but Black men in particular are less tolerant of investment risk, causing many to miss out on the robust long-term gains in the stock market, according to a new retirement-optimism survey.
Separately, the OregonSaves retirement program reached a milestone in April, announcing that participating workers had saved more than $100 million since the initiative to broaden access to retirement-savings plans was launched in 2017. Researchers say the program is effective because it automatically enrolls workers whose employers don’t sponsor 401(k) or similar plans, targeting workers who otherwise wouldn’t be saving for retirement at all.
Here’s the latest Barron’s roundup of retirement-related news and research.
Black Investors Have Bullish Outlook
/Gallup Investor and Retirement Optimism Index fell 16 points to a reading of +26 in the first quarter, but Black investors are considerably more optimistic, with a +101. For the sake of comparison, the index, established in 1996, hit a high of +152 in January 2000, at the height of the dot-com bubble, and a low of -81 in February 2009, during the financial crisis.
The survey was conducted Feb. 8-16 and involved 1,536 Americans with at least $10,000 in investible assets. Black investors were overrepresented in the poll, with 573 respondents, to allow in-depth analysis of their views on financial topics, according to Wells Fargo and Gallup.
Dave Dawkins, director of diverse client segments for Wells Fargo Advisors, said the optimism among Black investors is partially attributable to the new White House administration since 70% of those surveyed identified as Democrats. In addition, the vaccine rollout is giving hope to a community that was hit especially hard by Covid-19, he said.
The survey found that 72% of Black investors agreed that the stock market is a good place to invest their retirement savings, compared with 74% of all respondents. However, when asked about their risk tolerance, 38% of Black investors said they’re willing to take on “a lot” or a “fair amount” of risk, compared with 47% of all respondents. Among Black investors, 54% said they’re willing to take “only a little” risk.
Only 44% of Black men surveyed were willing to take a lot or a fair amount of risk, compared with 55% of all men polled. There’s less of a gap among women, with 35% of black women falling into this category, compared with 39% of all women surveyed.
One other survey finding: Among Black investors with a 401(k) or similar plan, 15% reported taking a loan from their accounts due to the pandemic, compared with 9% of all investors surveyed.
Dawkins, who’s Black, said the data show that “we’re missing out” on the healthy gains in equities enjoyed by the broader investment community. “When you have nominal wealth, the idea of taking great risk with that wealth probably seems incongruous to a lot of people,” Dawkins said, before identifying two other contributing factors: “You were never taught [about the stock market], and people in that world don’t look like you. You’re disconnected from it.
“I’ve personally given presentations to African-American audiences about reasons to invest in the stock market, and the response that I would get—and I was there giving the presentation—was, ‘That’s for others. That’s not for us.’ ”
OregonSaves Program Hits $100 Million
Participants in the OregonSaves retirement program had socked away more than $100 million into Roth IRA accounts as of April 2, according to the Oregon Retirement Savings Board, and researchers say most participants are sticking with the default savings rate of 5% of after-tax earnings.
OregonSaves was one of the first state-sponsored retirement-savings programs in the country, aimed at addressing the roughly 1 million Oregon workers who lack access to an employer-sponsored retirement plan. Eleven states are in various stages of creating similar programs, according to the Oregon Retirement Savings Board.
Oregon’s program is in the latter stages of a statewide rollout, with the state’s smallest businesses set to join next year, adding to the more than 105,000 workers currently contributing to accounts. Eligible workers are automatically enrolled but are free to opt out or get back in.
The first $1,000 in a worker’s account is invested in money-market securities, and additional contributions go into target-date funds or an S&P 500 index tracking fund. Workers can customize their investment strategy and get advice from an expert. Accounts are portable, so workers can continue contributing after they switch jobs.
Seven in 10 workers choose to remain in the program, saving an average of $135 a month, according to the state. The program automatically increases workers’ contribution rates 1% a year up to 10%, but they can change that at any time. About 1% of workers’ contributions go to administering the program.
In an analysis of OregonSaves by the National Bureau of Economic Research, researchers found that most workers who opt out do so because they can’t afford to save or don’t believe it will provide much benefit. The program includes mostly lower-wage workers, who are more likely to switch jobs often and need all of their earnings to get by, according to
Dr. John Chalmers,
a finance professor at the University of Oregon who co-wrote the analysis.
In addition, workers who opt out may believe they’ll never have the financial resources to retire, or they may recognize that Social Security typically replaces a large portion of the monthly income of low-wage workers, Chalmers said.
Still, Chalmers said the program proves the effectiveness of automatically enrolling workers and setting a meaningful default savings rate. His team’s analysis, which used data through April 2020, found that among active participants, 93.3% were contributing at the default rate of 5%.
“We find that participants basically do what they’re defaulted into,” Chalmers said. “For the most part, people either don’t contribute, or they contribute 5%. The power of the default to get people to save is being found in the demographic of higher-turnover employees with lower income.”
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