6 Ways Your Investments Can Fund Racial Justice

Protests against racism have demanded that we take action in our police department and other systems that historically oppressed people with color, including the financial system.

You can also join the protests by donating to organizations fighting for racial injustice or shopping at Black-owned companies.

“What comes after protests is money, and money is what will make change sustainable,” says Tiffany Aliche, a financial educator and founder of The Budgetnista.

These are six ways you can support racial equality with your investment portfolio.

1. Invest in Black-owned businesses and funds that support racial Justice

Kenneth Chavis is a senior wealth manager at LourdMurray and a certified financial planner. He says that investing in stocks of Black-owned businesses can offer two main benefits to investors: diversification as well as the potential for high performance.

Diversification, which means spreading your portfolio among companies from different industries and locations, is crucial to reducing your risk. It also helps you choose companies with different sizes. Chavis points out that small businesses are known for their potential growth. “Keeping in mind the fact that some Black-owned businesses are smaller, there are tons of research that suggests that the probability that a small company will outperform the average big company over long periods of times — or just the broad marketplace — is extremely high.” You’ll need to carefully vet your investment.

There are very few of these stocks that are listed on the public exchanges. It is difficult to weed through stocks and build a portfolio without extensive research. So another option is to use your dollars to invest in mutual funds or exchange-traded funds that will do that work for you. The NACP ETF tracks Morningstar Minority Empowerment Index. It provides exposure to companies that comply with the NAACP guidelines. However, the NAACP does not endorse or sponsor the fund. All net advisory profits from the fund’s management fees are donated to NAACP. There is also a growing number of ESG funds, or funds that are graded using environmental, social and governance criteria.

2. Explore peer-to-peer lending

Peer-to-peer lending companies like SoLo Funds give people who have historically been overlooked by financial institutions and traditional loan programs the ability to access capital. The terms of the loan are set by SoLo borrowers, with no formal approval. Lenders get “appreciation tips” and there are no minimum requirements. You can start with any amount.

Chavis states that peer-to-peer lending is beneficial for asset diversification. P2P loans are not usually correlated with the stock market. He adds that it is a great way to assist disadvantaged communities to access capital for personal or business purposes.

One of the main risks associated with P2P lending is that the borrower might not be able repay the loan. SoLo attempts this by giving every borrower a SoLo score. This acts as a platform-specific credit rating and is based upon your initial registration and how your loans have been handled. Chavis recommends that you diversify the loans you offer. This will help reduce risk.

3. 3.Invest in companies that support racial justice financially

Public companies can be rewarded with your investment dollars if they donate money to support racial equality. Many large corporations have made pledges of money over the years to support anti-racism initiatives. You are supporting companies that put their money where it is needed by investing in them. It is also possible to see if the company has a CSR initiative, which supports local communities.

Aliche also says that spending money is the same as investing money. You might not see a return if your stock is not actually owned by you, but you are putting money into these companies.

She recommends that you review the company’s website, social media and who is on their staff before spending any money. Aliche says it is crucial to spend your money with companies who are aligned.

4. Look into real estate crowdfunding or startups

Although you may not yet be an angel investor, you can still invest in cool startups that aren’t yet publicly traded. Republic lets investors find emerging businesses for as low as $10 and get in on ground floor. The site also lets you filter listed businesses to those with Black founders (as well as to those with female founders and other socially responsible investing criteria).

Buy the Block is a crowdfunding platform that allows you to invest in real property and in some cases the businesses they will house. It’s all about giving people an equity stake in their communities, as well as working to stop gentrification. You can invest on Buy the Block for a minimum of $100 (which is significantly less than most real estate crowdfunding platforms). Many of the projects on Buy the Block are located in historically Black neighborhoods.

You could lose all of your investment in real estate crowdfunding or startups. Do your research before you make any investment.

5. 5. Rethink your bank

Consider a Black-owned bank if your current bank isn’t meeting your needs. A 2019 FDIC study found that minority deposit institutions are more likely to originate mortgage loans for minorities than non MDIs. Some institutions are also designated Community Development Financial Institutions. This means that 60% of their financing activities are geared towards low- and medium-income people.

Aliche says, “I love small, local banks.” “Don’t hesitate to ask about initiatives for the African American community at banks that reinvest in your community. They might have more community-focused initiatives even if they aren’t African American-owned banks.

6. Learn from and collaborate with Black financial professionals

Working with a Black financial advisor not only invests your money back into the community, it helps that advisor continue adding their perspective to the predominantly white space of financial advice. The Association of African American Financial Advisors has a list of Black financial advisors.

Black-owned investment platforms offer financial guidance and can be used to help you invest. Freeman Capital, a Black-owned, -founded investment platform, recognizes the wealth gap and provides everything you need, from automated investing to consultations and CFPs.