The past year has been rough for the stock market, and recent bank woes and rising interest rates have prompted higher levels of volatility.

It’s why some Americans are hesitant about investing in the stock market: 36 percent of Americans who say stocks aren’t their preferred way to invest long-term point to the stock market volatility, according to a July Bankrate survey.

But contrary to popular belief, opportunities to build long-term wealth can arise when stock prices fall, especially for groups that historically lag behind when it comes to investing.  With the stock market down from its highs in 2021, women and people of color have an opportunity to get in the market and buy new investments at generally lower levels. And because the stock market has historically risen over time, they have a solid chance of earning strong returns in the long run, despite the short-term ups and downs.

“If we want to be in a position to retire with dignity, to leave an inheritance to our children, to be able to pay for college for our children, we have to invest because we’re coming from so far behind,” said Anna N’Jie-Konte, CFP and founder of Dare to Dream Planning.

Key insights on the racial and gender investing gap

Dollar Coin
  • Women and people of color are behind in investing in the stock market. More than half of women (54 percent) don’t have stocks or stock-market related investments in a retirement account or other investment account, compared to 44 percent of men. Almost 6 in 10 (59 percent)  Black U.S. adults and 57 percent of Hispanics don’t have stocks or stock-market related investments in a retirement account or other investment account, significantly less than white Americans (46 percent), according to a May Bankrate survey.
  • The gap can also be seen in retirement savings. An October 2022 Bankrate survey  found 62 percent of working women are significantly behind on their retirement savings, compared to 48 percent of working men. Also, 25 percent of Black workers and 34 percent of Hispanic workers said they were not contributing to retirement savings between September 2021 and 2022, compared to 21 percent of their white counterparts.
  • People of color are more likely to react to elevated inflation. Bankrate data shows more Black American investors (28 percent) and Hispanic investors (38 percent) moved money out of stock-related investments and/or withheld additional contributions to stock-related investments as a direct result of elevated inflation in 2023  — compared to 23 percent of their white counterparts.
  • Intimidation of the stock market is partly to blame. 2022 Bankrate data found almost 1 in 5 women (19 percent) who don’t think the stock market is the best way to invest money long-term say it’s because they’re intimidated by the stock market, compared to 13 percent of men. Nearly 20 percent of Hispanics and 13 percent of Black Americans who don’t think the stock market is the best way to invest money long-term say it’s also because they’re intimidated by the stock market.

Most women and people of color aren’t investing in the stock market

If there’s one thing Delyanne Barros regrets, it’s not investing sooner.

Barros, a lawyer turned money coach who teaches financial literacy to the Latinx community she’s part of, wishes she had asked someone about investing when she was first offered a 401(k) plan at work. Instead, she saw the word “retirement” and figured it wasn’t something she needed to worry about anytime soon.

“Even though I was struggling to pay off $150,000 in student loans back then, I know I could’ve at least contributed enough to get the employer match and that would’ve made a huge difference in my portfolio,” Barros said.

It’s a common theme among women and people of color, who continue to lag behind in investing in the stock market. More than half of women (54 percent) don’t have stocks or stock-market related investments in a retirement account or other investment account, compared to 44 percent of men. Similarly, around 60 percent of Black U.S. adults and Hispanics don’t have stocks or stock-market related investments in a retirement account or other investment account, significantly less than white Americans (46 percent), according to a Bankrate survey in May 2022.

“We as women and people of color typically have not invested in the stock market at the same rate as white men have,” N’Jie-Konte said. “We have been paying down debt, focusing on saving and not necessarily investing.”

The gap can also be seen in retirement savings. Sixty-two percent of working women are significantly behind on their retirement savings, compared to 48 percent of working men, according to an October Bankrate survey.

Also, 25 percent of Black Americans and 34 percent of Hispanics said they were not contributing to my retirement savings between September 2021 and 2022, compared to 21 percent of their white counterparts.

Experts say women and people of color’s lack of participation in the stock market is a missed opportunity since it’s one of the most effective ways to build long-term wealth. But it’s never too late to start. After the S&P 500 hit bear market territory in 2022, stocks look poised for a rebound over the next 12 months, according to investment experts surveyed by Bankrate. That makes this year a great buying opportunity for all investors, including women and people of color, who have a long time horizon. Between January 1996 and June 2022, the S&P 500 consistently returned an average of 6.8 percent annually after inflation, according to a McKinsey analysis.

The chart below shows just how much you stand to earn if you invest consistently over four decades, compared to stuffing cash under a mattress or putting your money away in a savings account. You could leave as much as $580,000 on the table if you keep your money in a savings account instead of investing in the S&P 500 over your lifetime.

“For people of color and women, just getting started is the biggest hurdle,” N’Jie-Konte said. Most major brokerages have no trading fees, no account opening fees and no account maintenance fees. And the sooner we realize that we have just as much of a right to be there as others, the better off we will be.”

Why women and people of color lag behind in investing

Several reasons may contribute to women and people of color investing less than their white counterparts. People often point to a lack of financial literacy first, but that’s not the case, according to Barros. “The issue is the gender and racial pay gaps that have persisted and became even more apparent during the pandemic,” Barros said.

As of 2021, Census data shows women earn about 82 cents for every dollar men make, while the pay gaps are even wider for women of color. Latinas earn about 58 cents and Black women earn about 63 cents for every dollar white men earn. The median annual salary for Black workers is roughly 30 percent, or $10,000, lower than that of white workers, according to 2021 McKinsey research.

“Discrimination in the workplace and pay continues to be an intractable issue that often has to be fought through the courts,” Barros said. “Most people of color do not have the means to hire attorneys to fight this battle.”

Women have also long faced wealth gaps. Households led by women have just 55 cents in median wealth for every dollar owned by households headed by men, according to 2021 data from the St. Louis Fed. It’s a similar situation for people of color: The McKinsey report estimated 3.5 million Black households in the U.S. have a negative net worth.

Those pay and wealth gaps follow women and people of color into retirement: As a result of lower lifetime earnings, they don’t have as much opportunity to build wealth. All these factors combined have enormous implications for women and people of color’s economic security and ability to build wealth.

Experts say that intimidation of the stock market is also to blame. CFP Kenneth Chavis has seen firsthand the hesitancy from Black Americans to invest in the stock market because they don’t perceive themselves as the kind of person who can or should invest. In addition, he said that women and people of color don’t know or see many investors who look like them.

“Anecdotally, I can say that’s 1,000 percent accurate. I’m African American, and my parents and my family did not invest,” Chavis said. “We wouldn’t have conversations really about wealth building or money.”

Women often don’t envision themselves as investors either. Women are significantly less likely than men to say, “I consider myself an investor” (22 percent vs. 40 percent), according to a 2016 BlackRock survey. A Bankrate survey in July 2022 also revealed about 1 in 5 women (19 percent) who don’t think the stock market is the best way to invest money long-term say it’s because they’re intimidated by the stock market, compared to 13 percent of men. Among those who don’t think the stock market is the best way to invest money long-term, the survey also found nearly 20 percent of Hispanics and 13 percent of Black Americans say they’re intimidated by the stock market.

N’Jie-Konte said there’s also a “real distrust” of financial institutions in Black and Latinx communities, which ultimately affects how much risk they’re willing to take on as investors.

“We have less of a safety net if we have a financial setback, and we’re much more conservative in terms of our appetite for risk, which means we’re probably really fearful of investing and losing money,” she said.

In addition to that, many Black and Latinx consumers don’t have access to necessary financial products and services to be able to invest. Black and Latinx households represent 64 percent of the country’s unbanked and 47 percent of its underbanked households, according to a Boston Consulting Group analysis of a 2021 FDIC survey. The survey found insufficient funds and distrust of banks are the top two most-cited reasons for not accessing mainstream financial services for many in the Black and Latinx community.

How to start building wealth: 3 investing accounts women and people of color should know

Emotions can get the better of us when it comes to investing, and it’s easy to get sidetracked by short-term stock movements.

But experts say time, not timing, is the key to success when investing in the stock market. If you have a diversified portfolio that balances your short- and long-term financial needs with your risk tolerance, experts will reassure that you’ll see gains in the long run.

An effective way to get started is by opening a tax-advantaged retirement account, which is free and accessible through most major brokerages. Here are three investment accounts that every investor should leverage to build long-term wealth:

401(k)

An easy way to start investing, experts say, is in a 401(k) plan offered through an employer. Many employer-sponsored plans also have a 401(k) match, so if you’re contributing, your employer will match up to a certain percentage — and that’s free money on the table. For 2023, the 401(k) limit for employees is $22,500, which is above the 401(k) 2022 limit of $20,500. On top of these amounts, workers who are 50 and older can add up to $7,500 more annually as a catch-up contribution in 2023, up from $6,500 in 2022.

“This makes it very easy to sign up and automate your investing without any heavy lifting,” Barros said. “If you have any questions about these plans, you can ask HR or go directly to the plan administrator and ask there.”

If you’re wondering what exactly to invest in, the best investment for any investor — whether you’re an advanced or beginner investor — is to buy and hold low-cost index funds. Barros says it’s been “proven repeatedly” that active day-to-day trading, or short-term investing, underperforms investing in index funds in the long run, especially when considering the fees.

Traditional IRA

An individual retirement account (IRA) works like a 401(k), except anyone can open this type of account through a financial institution. You save taxes on every dollar you add, and it repels taxes as the investments grow. So if you contribute the maximum — currently $6,500 annually or $7,500 if you’re age 50 or older — you can reduce your taxable income by that amount, thus paying fewer taxes today. But you will pay income taxes on your investments when you withdraw during retirement later on.

Roth IRA

Similarly to an IRA, anyone can open a Roth IRA for free with most large brokerage firms, and you can contribute up to $6,500 per year or $7,500 if you’re 50 or older. The main difference between traditional and Roth IRA is when you pay taxes on your investments. Rather than growing tax-deferred like a traditional IRA, the money in a Roth grows tax-free, meaning you fund the account today with after-tax dollars. So, you’ll effectively pay zero taxes when you withdraw your earnings during retirement — as long as you’ve had the account for at least five years and you’re 59 ½ or older. But whether you can contribute to a Roth ultimately depends on your income. If you’re single, your ability to contribute to a Roth starts to phase out once your income exceeds $138,000 a year. For a married person, it’s $228,000.

If you’re scratching your head and wondering which investment account makes the most sense for you, the good news is you can’t go wrong with any of them. 401(k)s, IRAs and Roth IRAs are all effective investment accounts that can help investors compound their savings to build a retirement nest egg.

  • The study on Americans’ favorite long-term investments was conducted for Bankrate by SSR on its Opinion Panel Omnibus platform using both the telephone and the web. Interviews were conducted from June 17-20, 2022, among a sample of 1,025 adults. Data are weighted and are intended to represent all U.S. adults, and therefore are subject to statistical errors typically associated with sample-based information.

    The study on U.S. stock ownership and market volatility was conducted for Bankrate via phone interview by YouGov. Interviews were conducted from April 17-20, 2023, among a sample of 3,658 U.S. adults. Data are weighted and are intended to be representative of all U.S. adults, and therefore are subject to statistical errors typically associated with sample-based information.

    The study on the state of Americans’ retirement savings was conducted for Bankrate via phone interview by YouGov. Interviews were conducted from September 21-23, 2022, among a sample of 2,312 American adults. Data are weighted and are intended to be representative of all U.S. adults, and therefore are subject to statistical errors typically associated with sample-based information.