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The Racial Wealth Gap in America: Asset Types Held by Race

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Racial Wealth Gap

The Racial Wealth Gap

People of color have faced economic inequality for generations, and the recent wave of Black Lives Matter protests has renewed discussions on these disparities.

Compared to White families, other races have lower levels of income and net worth. They are also less likely to hold assets of any type. In fact, 19% of Black families have zero or negative net worth, while only 9% of White households have no wealth.

Today’s chart uses data from the U.S. Federal Reserve’s triennial Survey of Consumer Finances to highlight the racial wealth gap, and the proportion of households that own different kinds of assets by racial group.

Asset Types Held By Race

The financial profile between racial groups varies widely. Below is the percentage of U.S. families with each type of asset, according to the most recent survey from 2016.

 WhiteBlackHispanicOther
Primary Residence73%45%46%54%
Vehicle90%73%80%80%
Retirement Accounts60%34%30%48%
Family-owned Business Equity15%7%6%13%
Publicly-traded Stocks61%31%28%47%

Vehicles are the most common asset across all racial groups, followed by a primary residence.

However, the level of equity—or home value less debts—families have in their houses differs by race. White families have equity of $215,800, whereas Black and Hispanic households have net housing wealth of $94,400 and $129,800 respectively.

In addition, White households are more likely to hold financial assets such as retirement accounts, family businesses, and stocks. These assets are instrumental in building wealth, and are prominent in the wealth composition of America’s richest families.

With fewer people of color holding these assets, they miss out on higher average returns than low-risk assets, as well as the power of compound interest. These portfolio differences are striking, but they are not the most important contributing factor in the racial wealth gap.

Demographic and Economic Variations

White households are also more likely to have demographic characteristics that are associated with wealth. According to the U.S. Federal Reserve, they are:

  • Older, with more than half of households age 55 and up
  • More highly educated, with 51% having some type of degree
  • Less likely to have a single parent
  • More likely to have received an inheritance

For example, 39% of White heads of households have a bachelor’s degree or higher, compared to 23% and 17% for Black and Hispanic household heads, respectively. However, education doesn’t fully explain the wealth inequities.

Racial Wealth Gap by Education

Enormous wealth disparities exist between families with the same education level. Even in cases where Black and Hispanic household heads have obtained a bachelor’s degree, their families’ median wealth of $68,000 and $78,000 respectively is still lower than the $98,000 median wealth for White families where the head has no bachelor’s degree.

After accounting for demographic factors, researchers still found there were considerable inequities. What, then, could be primarily responsible for the racial wealth gap?

The Income Gap

While previous research found that the wealth gap is “too big” to be explained by a difference in income, a recent study from the Federal Reserve Bank of Cleveland offers a new perspective. Focusing on White and Black U.S. households only, researchers analyzed the dynamics of wealth accumulation over time, as opposed to previous studies that considered short time periods.

They found that income inequality was the primary contributor to the racial wealth gap. According to the model, if Black and White households had earned the same labor income from 1962 onwards, the Black-to-White wealth ratio would have reached 0.9 by 2007.

Moving forward, the study concludes that policy changes will likely have a positive impact if they address issues contributing to income gaps. This includes reducing racial discrimination in the labor market, and creating programs, such as mentorships, that improve environments for specific racial subgroups.

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Technology

Bitcoin is Near All-Time Highs and the Mainstream Doesn’t Care…Yet

As bitcoin charges towards all-time highs, search interest is relatively low. How much attention has bitcoin’s recent rally gotten?

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Bitcoin Near All-Time Highs vs. Search Interest

Just about every financial asset saw a huge drop in March, but few have had the spectacular recovery that bitcoin has had since then.

Up more than 300% from the March lows, bitcoin is within $1,000 of its all-time high ($19,891) established three years ago. While 2017’s run-up saw a huge surge in Google searches, interest this time around is less than a quarter of what it was back then.

This graphic overlays bitcoin’s price changes against Google search interest for “bitcoin” between 2017-Nov 2020, showing the muted relative search interest for its recent rally. Despite Google search interest being low, it is turning upwards, potentially hinting at a rise to cap off 2020.

Nobody’s Searching? Maybe Bitcoin is Already Mainstream

Bitcoin’s mainstream attention in 2017 was exceptional, and was likely the first time many people had even heard about the digital asset.

After doing all of their Google research back then, it’s possible that the general population is now well aware of the cryptocurrency and doesn’t need to search up the basics again. Add to this that bitcoin is now easily purchasable through popular services like Robinhood and Paypal, and you have fewer people who need Google to figure out the intricacies of bitcoin wallets and transactions.

While people might not be searching for information on bitcoin, the media has certainly picked up on its movement over the past year. Mainstream coverage regarding the cryptocurrency is currently at a relative all-time high for the past 12 months.

Mainstream Media Mentions of Bitcoin

Even if current mainstream coverage isn’t far from previous peaks, it’s still likely that people are seeing an increase in bitcoin content in their news feeds following the recent surge.

This rally is also attracting increased talk on social media sites like Twitter. That said, while there has been a rise in the volume of bitcoin-related tweets in November 2020, numbers are still quite low compared to the amount of tweets in 2017.

Tweets mentioning Bitcoin

Daily tweet volume reached above 60,000 recently, but is still far from the +100,000 daily tweets that were being sent at the top of 2017’s bull run.

Where in the World is Google Search Interest for Bitcoin?

Even if worldwide search interest isn’t as high as it was in 2017, there is one country where bitcoin is being googled more now: Nigeria.

Since 2015, the Nigerian Naira has lost more than 50% of its value against the U.S. dollar. This, coupled with the country’s high share of unbanked citizens means that alternative currencies and payment methods have steadily risen in popularity and utility.

Nigeria Bitcoin Google Search Trends

FinTech startups like Chipper Cash are providing Nigeria and other African nations with no-fee P2P payment services, along with the ability to trade bitcoin. The service is also beta testing the buying and selling of fractional shares of popular U.S. stocks.

Started up in 2018, Chipper Cash’s monthly payment values are now over $100 million, and the company has attracted investment from top VC funds like Bezos Expeditions as they provide a valuable service in an emerging market.

If Bitcoin is Mainstream, Where Does It Go From Here?

While bitcoin is proving itself to be a useful medium of exchange around the world, it’s still primarily a speculative asset. As 2020 saw massive increases in money supply across the board, bitcoin reacted best compared to other speculative assets, with its ascent to $19,000 almost completely uninterrupted since the $10,000 price area.

Time will tell if 2017 is set to repeat itself, or if bitcoin is getting ready to set new all-time highs going into 2021.

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Investor Education

Ranking Asset Classes by Historical Returns (1985-2020)

What are the best-performing investments in 2020, and how do previous years compare? This graphic shows historical returns by asset class.

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Historical Returns by Asset Class

Historical Returns by Asset Class (1985-2020)

Mirror, mirror, on the wall, is there one asset class to rule them all?

From stocks to bonds to alternatives, investors can choose from a wide variety of investment types. The choices can be overwhelming—leaving people to wonder if there’s one investment that consistently outperforms, or if there’s a predictable pattern of performance.

This graphic, which is inspired by and uses data from The Measure of a Plan, shows historical returns by asset class for the last 36 years.

Asset Class Returns by Year

This analysis includes assets of various types, geographies, and risk levels. It uses real total returns, meaning that they account for inflation and the reinvestment of dividends.

Here’s how the data breaks down, this time organized by asset class rather than year:

 U.S. Large Cap StocksU.S. Small Cap StocksInt'l Dev StocksEmerging StocksAll U.S. BondsHigh-Yield U.S. BondsInt'l BondsCash (T-Bill)REITGold
TickerVFIAXVSMAXVTMGXVEMAXVBTLXVWEAXVTABXVUSXXVGSLXIAU
2020*1.5%-5.5%-10.3%-0.7%4.9%-0.5%2.6%-0.7%-16.4%21.9%
201928.5%24.5%19.3%17.6%6.3%13.3%5.5%-0.1%26.1%15.9%
2018-6.2%-11.0%-16.1%-16.2%-1.9%-4.7%1.0%-0.1%-7.7%-3.2%
201719.3%13.8%23.8%28.7%1.4%4.9%0.3%-1.3%2.8%9.3%
20169.7%15.9%0.4%9.5%0.5%9.0%2.5%-1.8%6.3%6.6%
20150.6%-4.3%-0.9%-16.0%-0.3%-2.0%0.3%-0.7%1.6%-12.3%
201412.8%6.7%-6.4%-0.2%5.1%3.9%8.0%-0.7%29.3%-1.2%
201330.4%35.8%20.3%-6.4%-3.6%3.1%-0.4%-1.5%0.9%-29.0%
201214.0%16.2%16.5%16.8%2.4%12.5%4.5%-1.7%15.7%6.5%
2011-0.9%-5.5%-15.0%-21.0%4.6%4.2%0.8%-2.9%5.5%5.5%
201013.4%26.0%6.8%17.2%5.0%10.9%1.7%-1.5%26.6%26.0%
200923.3%32.7%24.9%71.5%3.2%35.6%1.6%-2.4%26.3%20.2%
2008-37.0%-36.1%-41.3%-52.8%5.1%-21.3%5.5%2.0%-37.0%5.4%
20071.3%-2.7%6.8%33.6%2.8%-1.8%0.1%0.7%-19.7%25.8%
200612.9%12.9%23.1%26.3%1.8%5.7%0.5%2.1%31.8%19.3%
20051.4%3.9%9.8%27.7%-0.9%-0.5%1.8%-0.5%8.3%13.0%
20047.3%16.2%16.5%22.1%1.0%5.2%1.8%-2.0%26.7%1.4%
200326.2%43.1%36.1%54.7%2.1%15.1%0.4%-0.9%33.3%19.2%
2002-23.9%-21.8%-17.6%-9.6%5.8%-0.6%4.2%-0.7%1.3%20.8%
2001-13.3%1.6%-23.1%-4.4%6.8%1.3%4.6%2.6%10.7%-0.4%
2000-12.0%-5.8%-17.1%-29.9%7.7%-4.1%5.4%2.5%22.2%-9.6%
199917.9%19.9%23.6%57.3%-3.4%-0.2%-0.6%2.0%-6.5%-1.7%
199826.6%-4.2%18.0%-19.4%6.9%3.9%10.2%3.5%-17.7%-2.4%
199731.0%22.5%0.0%-18.2%7.6%10.0%8.9%3.5%16.8%-23.2%
199618.9%14.3%2.6%12.1%0.3%6.0%8.3%1.9%31.4%-7.7%
199534.0%25.6%8.4%-1.9%15.3%16.2%14.3%3.1%10.0%-1.7%
1994-1.5%-3.1%4.9%-10.1%-5.2%-4.3%-7.3%1.3%0.4%-4.9%
19937.0%15.5%28.9%69.4%6.7%15.1%10.7%0.2%16.3%13.9%
19924.4%14.9%-14.7%7.8%4.1%11.0%3.3%0.6%11.2%-8.7%
199126.3%40.9%8.7%54.5%11.8%25.2%7.5%2.5%31.5%-12.5%
1990-8.9%-22.8%-27.9%-16.1%2.4%-11.3%-2.7%1.6%-20.3%-8.3%
198925.5%11.0%5.6%56.9%8.6%-2.6%-0.6%3.7%3.9%-6.8%
198811.3%19.7%22.8%33.9%2.8%8.8%4.4%2.1%8.6%-19.6%
19870.3%-12.7%19.3%9.3%-2.8%-1.7%4.5%1.3%-7.8%19.0%
198616.8%4.5%67.5%10.4%13.9%15.6%10.1%5.0%17.7%17.9%
198526.4%26.2%50.3%22.9%17.6%17.5%7.0%3.8%14.6%1.7%

*Data for 2020 is as of October 31

The top-performing asset class so far in 2020 is gold, with a return more than four times that of second-place U.S. bonds. On the other hand, real estate investment trusts (REITs) have been the worst-performing investments. Needless to say, economic shutdowns due to COVID-19 have had a devastating effect on commercial real estate.

Over time, the order is fairly random with asset classes moving up and down the ranks. For example, emerging market stocks plummeted to last place amid the global financial crisis in 2008, only to rise to the top the following year. International bonds were near the bottom of the barrel in 2017, but rose to the top during the 2018 market selloff.

There are also large swings in the returns investors can expect in any given year. While the best-performing asset class returned just 1% in 2018, it returned a whopping 71.5% in 2009.

Variation Within Asset Classes

Within individual asset classes, the range in returns can also be quite large. Here’s the minimum, maximum, and average returns for each asset class. We’ve also shown each investment’s standard deviation, which is a measure of volatility or risk.

Return Variation Within Asset Classes Over History

Although emerging market stocks have seen the highest average return, they have also seen the highest standard deviation. On the flip side, T-bills have seen returns lower than inflation since 2009, but have come with the lowest risk.

Investors should factor in risk when they are looking at the return potential of an asset class.

Variety is the Spice of Portfolios

Upon reviewing the historical returns by asset class, there’s no particular investment that has consistently outperformed. Rankings have changed over time depending on a number of economic variables.

However, having a variety of asset classes can ensure you are best positioned to take advantage of tailwinds in any particular year. For instance, bonds have a low correlation with stocks and can cushion against losses during market downturns.

If your mirror could talk, it would tell you there’s no one asset class to rule them all—but a mix of asset classes may be your best chance at success.

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