Black, Hispanic investors younger, more open to risk: Report

While minority investors are entering the retail investing market at a faster pace than whites, they're also behaving more like younger investors when it comes to investing.

That includes relying on social media for investment information and trading risky investments such as cryptocurrencies and meme stocks, according to a report, Investors of Color in the United States, compiled by the Finra Investor Education Foundation.

The new investors, particularly those who are Black and Hispanic, tend to be much younger than white investors, according to Finra.

And similar to other younger investors, Black and Hispanic investors are more likely to engage in risky investments such as meme stocks, cryptocurrencies, and options, according to the report, which was issued last month and is based on based on data from the Finra Foundation's National Financial Capability Study, along with a series of focus groups conducted with young African American, Latino and Asian American investors.

A common wisdom in the retail investing industry is that younger clients, many of whom have not yet been burned by a market correction, have a much higher appetite for big risks than their gray-haired counterparts.

In both the survey and focus groups, respondents were required to be investors – holding securities investments in non-retirement accounts – and not just saving for retirement, according to Finra.

Minority investors are a growing portion of the U.S. retail securities market, according to the report. Compared to 2015, there was an increase of 9 percentage points in the portion of Black respondents who are investors, an increase of 6 percentage points among Hispanic respondents, and a rise of 7 percentage points among Asian Americans. In contrast, the portion of white respondents who are investors has not substantially changed.

"Non-white investors tend to be younger than white investors," according to the report. "This is particularly noticeable among Black and Hispanic investors, nearly half of whom are under age 35."

The appetite for risk is present among these investors, according to the report. Data from the survey show that Black investors are much more likely to have traded shares of GameStop, AMC, or Blackberry in 2021 than investors of other ethnicities.

Minority investors are also more likely than white investors to use online videos for investment information, according to the report. “Somebody on Instagram," one Hispanic female in a focus group said. "She’s just like a financial advisor or whatever. But I love how she dumbed down finance, I guess, for me.”

One attorney said that minority investors, particularly older clients, can often be targets of unscrupulous investment promoters.

"A pattern has emerged in my practice where minority victims prematurely trust the smooth-talking sales agents because they have not experienced investment loss before and are less suspicious of unrealistic investment returns," said Brandon Reif, a securities attorney. "I have represented minorities who entrusted their life savings to sales agents who do not preserve the clients’ nest egg and mislead the clients about the investment terms and risks in order to earn the sales commission.

"Many minority victims are elderly, and often the women run the family’s household and are making the investment decisions," Reif said. "The abusive practices include high-pressure sales tactics, the sale of complex products like insurance, structured products, non-public investments and Ponzi investments that are unfamiliar to the minorities and sold by professionals they do not know well.

"The minority clients I continue to represent purchase complex investments they do not understand, sold by sales agents who misstate the terms and risks," he added.