Power to the People: How AI Supports Diversity Among Investors

Power to the People: How AI Supports Diversity Among Investors

Ready for Investing with Personalized Guidance

63% of American investors are planning to invest more in 2023 than they did last year, according to a recent survey by Magnifi. This readiness to leverage the power of the market is shared across communities of color. Of those planning to invest, African Americans led the way, with 65% saying that they planned to invest more this year than last year. Hispanic American and Asian Americans were close behind, with 62% and 58% saying that they would invest more this year, respectively.

Historically, many people of color have neither been served by traditional financial services nor been able to generate the kind of intergenerational wealth that would allow them to set money aside in a retirement fund—so this is good news for them and their families.

In addition, the survey noted, around three-quarters or more of investors of color believe that advice tailored to their unique needs and goals will help them achieve better financial outcomes. The desire to meet one’s financial goals is universal, but everyone’s path along that journey is unique. As the US population grows increasingly diverse, artificial intelligence (AI)-assisted investing capitalizes on AI’s ability to personalize experiences to address the widening spectrum of financial goals, needs, and interests.

Not Just Diversity in Investments, but Diversity and Inclusion for Investors

The wealthy stockbrokers and merchants who created the New York Stock Exchange in 1792 could never have predicted the diversity of today’s American investors. A look at the numbers reveals the many ways investors of color are already influencing the market.

A majority of American investors are white, but the numbers are changing. During a decade when the white majority of investors shrank from 75 percent in 2010 to 67 percent in 2021, the numbers of Black and African American investors grew (9.4% to 10%), as did Asian investors (4.3% to 5.3%), and Hispanic and Latino investors (9% to 12%).

Afrotech reports that young Black American investors have been jumping into the markets: 68 percent of Black investors are forty years old or younger. Many aren’t following the traditional workplace-retirement-plan route.

Another survey noted that Black investors are twice as likely than white investors to say that crypto was their first investment (11% compared to only 4%).

Half of Black American investors (47%) have invested in an asset that they did not fully understand - an approach shared by 45 percent of white investors.

The Hispanic Wealth Project, whose mission is to advance wealth building in the Hispanic community, states that only 25 percent of the large group they surveyed invest in a retirement account, while the majority of non-investors are homeowners or investment property owners. The Project flags a critical issue: the lack of diversified assets among the Hispanic/Latino community that they surveyed.

Where these two communities of investors intersect is a keen interest in investing with social impact: According to a JP Morgan Wealth Management survey, Black and Latino investors prioritized investing in BIPOC- and/or women-owned, started, or operated companies; companies with positive environmental impact; and companies that promote gender and racial equity and diversity. Having control over investments was another shared priority: a majority of Black Americans (59%) and Hispanic Americans (57%) preferred to select their investments, compared to 46 percent of white Americans.

Meanwhile, for Morningstar, financial planner and investment strategist Phuong Luong has described the spectrum of needs for Asian Americans, from new Asian immigrants to the next generations. She highlights the huge wealth gap between the poorest and richest Asian Americans—which is significantly larger than between any other racial group in the US.

The Asian Americans who are investing contribute more of their income than the general population, between 47 and 36 percent (for foreign-born and US-born Asian Americans, respectively) compared to 10 percent of the general population, according to a 2008 Prudential study. The same study indicated that these investors were more comfortable managing their own investments than the general population.

Suggested among the recent surveys and experiences are desires that new and experienced investors of color have: a thirst for knowledge, a desire to invest with impact, to have more control over investments. And AI-assisted investing is ready for them.

AI-Assisted Investing: No More “One-Size-Fits-All”

Just as there isn’t “one kind” of American investor, there can’t be “one kind” of investing guidance for the many investors of color who are planning on investing on their own. According to a 2022 Magnifi survey, 58 percent of Asian and Asian American investors were anticipating investing on their own, followed by 46 percent of Hispanic and Latino investors; and 44 percent of African American and Black investors; while only 33 percent of Caucasian or white American investors were planning to do so.

According to the 2023 survey, Americans of color also tended to be more positive about the potential of AI to improve their lives than Caucasian/white Americans. And when these Americans were asked how AI could help them invest, their responses were as diverse as they are.

• Research: About a quarter of all investors of color saw the benefits of AI helping them research companies, trends, and more. Asian / Asian American investors generally prefer this (27%) followed by Hispanic/Latino (26%) and African American / Black (23%) investors.
• Analyze: A majority (46%) of Asian / Asian American investors wanted AI to help analyze historical data trends, followed by African American / Black (25%) and Hispanic/Latino (21%) investors.
• Keep financial goals on track: Hispanic/Latino (21%) investors believed they would need AI to monitor their investments to help keep their financial goals on track. Eighteen percent (18%) of African American / Black investors noted this followed by just 5 percent of Asian / Asian American investors.
• Understand jargon: Twenty percent (20%) of Hispanic/Latino investors saw that AI could help them understand complex financial terms followed by 17 percent of African American / Black investors and 14 percent of Asian / Asian American investors.
• Get investing recommendations: Getting investing recommendations was a priority for 16 percent of African American / Black investors, followed by 13 percent of Hispanic/Latino and 8 percent of Asian / Asian American investors.

Today’s AI technology has dispensed with the “one size fits all” approach to investing, which promises to help new generations of investors find even better opportunities. After all, closing the racial gaps in how people build intergenerational wealth has far-reaching impact. As David Miree, Global Head of Diversity, Equity & Inclusion at JP Morgan Chase says, “When more people have a fair shot at opportunity, our economy and communities are stronger.”

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References:

1. William H. Frey, “New 2020 census results show increased diversity countering decade-long declines in America’s white and youth populations,” August 13, 2021, Brookings, https://www.brookings.edu/research/new-2020-census-results-show-increased-diversity-countering-decade-long-declines-in-americas-white-and-youth-populations/
2. “Investor Demographics and Statistics in the US,” accessed February 23, 2023, Zippia, https://www.zippia.com/investor-jobs/demographics/
3. Josh Rodgers, “Young Black Investors Are Key to Help Close the Racial Wealth Gap, Survey Shows,” April 25, 2022, Afrotech, https://afrotech.com/young-black-investors-are-key-to-help-close-the-racial-wealth-gap-survey-shows
4. Kimberly Adams, “Crypto marketing attracted a disproportionate number of Black investors. Here’s why,” February 3, 2023, Marketplace, https://www.marketplace.org/2023/02/03/crypto-marketing-attracted-a-disproportionate-number-of-black-investors-heres-why/
5. Josh Rodgers, “Young Black Investors Are Key to Help Close the Racial Wealth Gap, Survey Shows,” April 25, 2022, Afrotech, https://afrotech.com/young-black-investors-are-key-to-help-close-the-racial-wealth-gap-survey-shows
6. 2022 State of Hispanic Wealth Report, September 23, 2022, National Association of Hispanic Real Estate Professionals® (NAHREP®) and the Hispanic Wealth Project, https://hispanicwealthproject.org/downloads/2022-SHWR-Annual-Report.pdf
7. “Black and Hispanic Americans Prefer to Take More Control Over Their Investments and are Driven by Purpose, New J.P. Morgan Wealth Management Study Finds,” August 22, 2022, JPMorgan Chase & Co., https://www.jpmorganchase.com/news-stories/jpmc-black-and-hispanic-americans-prefer-to-take-more-control-over-their-investments-and-are-driven-by-purpose
8. Phuong Luong, “The Myth of the ‘Asian American” Client,” June 7, 2021, Advisor Insights, Morningstar, https://www.morningstar.com/articles/1042282/the-myth-of-the-asian-american-client
9. Roselle Caballes,”Managing Financial Challenges for Asian Americans and Pacific Islanders,” November 27, 2022, Moneygeek, https://www.moneygeek.com/financial-planning/resources-for-asians-pacific-islanders/
10. “Black and Hispanic Americans Prefer to Take More Control Over Their Investments and are Driven by Purpose, New J.P. Morgan Wealth Management Study Finds,” August 22, 2022, JPMorgan Chase & Co., https://www.jpmorganchase.com/news-stories/jpmc-black-and-hispanic-americans-prefer-to-take-more-control-over-their-investments-and-are-driven-by-purpose