How to effectively invest for racial justice
Wondering how you can help close the wealth gap? Start with these impact investing 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 toward 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 one action can correct the wrongs that have compounded over time and that continue today, for those who wish to be part of driving sustainable change, you can do so by actively investing for racial justice. Here’s how.
In this article:
Why impact investing matters
Samantha Gorelick, a CERTIFIED FINANCIAL PLANNER™ professional at Brunch & Budget in Brooklyn, New York, says investments of all kinds in Black-owned companies and communities of color has always been the catalyst that drove change. She notes that, historically, improvements in racial equity were only made if it wasn’t at the economic expense of those in power. Yet, “when the white people in power began to lose money — see the Montgomery bus boycott, for one example — whites felt incentivized to make additional policy changes.”
When companies feel the community’s demand for change in their wallets, they’re more likely to take part. And all of us have the power to make that demand every day by consciously deciding how we invest and spend our money.
Five ways to invest for racial justice
Invest in Black-owned businesses
Investing in the stock of Black-owned businesses can support valuation of those companies, which ultimately helps them fundraise and grow. However, finding and researching individual publicly-owned companies to invest in can be time-intensive and limit your portfolio’s diversification. Luckily, there is a growing number of Racial Justice Investing funds in the impact investing space.
These funds aim to focus investments around Black-owned companies and those companies with strong racial and ethnic diversity policies in place. When considering a fund like these, it’s important to look at its individual holdings, as well as the methodology of why those companies were chosen.
Gorelick notes, “A company may be included in a portfolio for merely doing the bare minimum, and unfortunately this may be better than what comparable companies are doing. Understanding this limitation is important when assessing whether this is something that makes you feel better about where your money is going.”
Investing in these funds and pushing for better methodologies for building them is a positive force, says Gorelick. As the more people invest in funds like this, the more pressure companies will have to change their practices.
Explore crowdfunding to kickstart new businesses
Racial justice funds is a way of supporting public companies, but you can also support small and new businesses through crowdfunding or angel investments.
According to American Express’ 2019 State of Women-Owned Business report, Black women represent 42% of net new women-owned businesses started in the last year. However, in the past decade, Black women-led businesses received just 0.0006% of total venture capital dollars. iFundWomen of Color is a crowdfunding platform that was launched in January 2020 to help close those funding gaps.
Alternatively, angel investing allows you to buy into startup companies. The risk is much higher when it comes to these investments, as the businesses are often unproven, but the payout can be high as well.
You used to need a large sum of money as an angel investor. But today, services like Republic let you invest in tech startups with as little as $10. While not all startups on Republic are Black-owned, the platform encourages and supports business with founders not traditionally served by the venture capital markets. It also notes companies that are Black-owned or focused on social good to make them easy to find.
According to a 2019 report, Black women represent 42% of net new women-owned businesses started in the last year. However, in the past decade, Black women-led businesses received just 0.0006% of total venture capital dollars.
Consider your real estate investing strategy
Real estate investors have long been attracted to lower-income neighborhoods where they felt they could gentrify — increasing prices and potentially returns. But gentrification has a bad rap for a reason: It rarely benefits the families already living in those 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 steward.” Instead of just raising the rents because you can, potentially removing the last affordable place in that price range in the city, ask yourself, “Are you going to be part of the change that moves Black families out or that gives them a place to stay and nurtures the community?”
This heart-centered method isn’t just about being a positive source of change. Often, Phillips finds, this can actually be more profitable long-term, as it leads to tenants who stay and maintain 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 story of a neighborhood before you invest. Fail to do so, Phillips says, and “what you get is a push out instead of an integration in our neighborhoods. You have to be intentional.”
Move some of your savings to a Black-owned or local bank
The lending practices of banks determines what families and businesses get funding and at what rates. Moving some of your money into Black-owned and/or locally-owned banks that actively reinvest back into your community can lead to greater funding for people of color and low-to-moderate income individuals.
But using these institutions can also benefit your personal finances.
Tasha Cochran, an attorney and personal finance expert who previously worked at the FDIC regulating community banks shares that while bigger banks aim 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’re more willing and able to create custom financial solutions for your specific needs,” says Cochran. Also, since community banks tend to hold their loans instead of bundling and selling them off their balance sheets, these banks, “share the risk right alongside you. It’s a high-touch, symbiotic, long-term relationship.”
Review where you’re spending your money
Whether or not you have the assets to invest for social impact, you do spend money almost every day. Where you buy your food, gas, clothes, and entertainment. Who you hire for home improvement work, tax accounting, or financial advice. Every one of these decisions is an opportunity to take positive action towards closing racial wealth gaps.
Take the time to review your spending and consider the organizations and businesses you are choosing to support. Are there alternatives that would allow you to move your spending to Black-owned or actively anti-racist businesses?
This process takes some research and can feel overwhelming at first, especially if you’re attempting to look at all your expenses at once. Remember that the goal is sustainable change and that you don’t have to shift everything all at once.
Set a goal of going through your spending and moving one recurring expense to a business owned by a person of color. For example, buying books at a local, Black-owned bookstore, rather than from a certain e-commerce monolith. Then set an alarm in your calendar to review and make another change next month.
By aligning your spending with your values, you’re choosing one of the most direct ways possible to create a wave of change.
Make consistent, sustainable change to support racial justice
Consciously directing how you use your money can start to close racial wealth gaps as we push for broader social change.
Yet, one of the most positive steps we can all take is continuing to invest in understanding our own biases and choosing to be actively anti-racist in all areas of our lives. Reading books and taking courses to understand our own role, listening to leaders in the racial justice movement, and speaking up when we see injustice are all great places to start.
The gaps created over centuries can’t be closed overnight, but considering where we have power — such as how we use 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 finance, investing, and reducing money stress. Chelsea is an ex-hedge fund investor whose work has appeared in a wide array of publications, including Forbes, Business Insider, and more.Read more by Chelsea Brennan
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