Join our community of more than 300,000 investors!
Close Popup Icon

February 5, 2021

How to Invest in Black-Owned Businesses and Close the Racial Wealth Gap

Racial wealth inequality has always been an issue in North America. The events of the past year, including but not limited to the ongoing pandemic, continue to disproportionately impact the Black community and other minorities. Access to capital, the labor market, and lack of resources all point to the reason why nearly 40% of Black-owned businesses don’t expect to survive the pandemic.

Part of being an informed investor in the modern economy is to do our due diligence around the message we’re sending through our investments. By supporting Black-owned businesses, being diligent about our investments in the stock market, real estate, and other investment types, and making a dedicated effort to help our local community, we can narrow the racial inequality wealth gap. For easy, actionable ideas and more information, keep reading below:

Read about and identify Black-owned businesses

Consumers today have hundreds of brands to choose from, so why not choose one that supports the Black community? Unfortunately, social media algorithms have ‘learned’ inequality – when people like, share, and comment on predominantly white content creators. It takes some research and exploration to find the businesses you’d want to support.

Fortunately, the internet took that on as a challenge after the Black Lives Matter protests. Here are some crowd-sourced lists of Black-owned businesses — including candle makers, goth clothing brands and doughnut shops — as a place to start. Most cities and urban areas have their own business groups such as the Washington D.C. Economic Partnership and the Central Ohio African-American Chamber of Commerce also maintain lists of Black-owned businesses. There are websites like We Buy Black and Official Black Wall Street that are constantly being updated as well.

If you need a reminder as to why it’s important to support Black businesses specifically, consider this statistic: while about 15 percent of White Americans hold some business equity, only 5 percent of Black Americans do. And that 5 percent does not have it easy. According to a 2019 report by American Express, Black women business owners are the fastest-growing group of entrepreneurs in the US. However, they’re more likely to rely on credit cards and personal savings rather than outside investors to start their businesses, and more likely than their White counterparts to be denied a bank loan, according to the US Department of Commerce’s Minority Business Development Agency.

Hold corporations accountable when they say they support BLM

Make sure that the companies you love and support are doing their part to support the Black community. Many public companies came out with announcements of support (whether financially or through increasing leadership diversity, etc.) last year, but most of them are overdue for a follow-up analysis of how much things have really changed for the better.

Expand opportunities for mentorship and sponsorship

In your own organization, take a moment to reflect on opportunities for mentorship and sponsorship for underrepresented groups. If there are any networking, mentorship, and sponsorship programs, do they consciously address diversity and inclusion? Unconscious bias can affect mentorship and sponsorship, because humans tend to gravitate toward mentoring people they view as similar to themselves.

According to a McKinsey report, only about 3 percent of current Fortune 100 company CEOs are Black, and fewer than 4 percent of leaders with responsibility for departments’ profit and loss—roles that tend to accelerate career progression—are Black.

Buy stock in Black-owned companies

Unfortunately, there are only a handful of stocks listed on public exchanges with Black CEOs and leaders. This process requires some research and expertise to add to your investment portfolio. To get you started, here’s a list of companies to research:

Another option would be to look into mutual funds or exchange-traded funds that focus on ESG (Environment, Social and Governance) factors. For example, the NACP ETF tracks the Morningstar Minority Empowerment Index and provides exposure to companies that meet the NAACP’s (National Association for the Advancement of Colored People) guidelines. The fund is not sponsored or endorsed by NAACP, but all net advisory profits from the fund’s management fee are donated to the NAACP.

You can also invest in real estate (and in some cases, the businesses those buildings will house) with Buy the Block, a crowdfunding platform that provides people with an equity stake in their communities and blocks gentrification. Many of the projects listed on Buy the Block are in historic Black neighborhoods or benefit a local Black community (such as markets that aim to bring produce grown by Black farmers into food deserts).

Choose to change your habits as a consumer

As we mentioned before, Black-owned businesses have been hit particularly hard during the pandemic. In some cities, they were closed down, looted or destroyed in recent protests. To support businesses in your own local community, make an effort to buy local. Buying gift cards is another way of injecting cash into businesses that might sorely need it.

By buying locally from Black-owned businesses, investing in publicly owned companies with BIPOC leaders and board members, and changing the narrative on social media, we can directly help build generational wealth in Black families. This in turn brings economic stability and strength to change the course and provide access to previously barred resources.

Want to generate your own wealth with DiversyFund?

Get Started

Sign up for investment updates, articles, & exclusive offers