Tania Brown, CFP®

The Origins of the Racial Wealth Gap Decades of voting, housing, job, and banking discrimination created a racial wealth gap in the U.S. One of the hallmarks of this country is an opportunity to become whatever you want to be. But if we look at the racial wealth gap, it unravels a historical narrative of unequal levels of opportunity that continue to impact us today. The Brookings Institute noted that “At $171,000, the net worth of a typical white family is nearly ten times greater than that of a Black family ($17,150) in 2016.” Mehrsa Baradaran, the author of The Color of Money, puts it best when she states, “The wealth gap is where historic injustice breeds present sufferings.” Looking at the racial wealth gap is like a cobweb. Each strand, or in this case, a reason for the racial wealth gap, can be overcome. But if you combine the strands—the reasons—it grows into a web. These strands are decades of voting, housing, job, and banking discrimination, to name a few, and years of this repeated pattern over generations creates a ripple effect that leads to racial wealth disparities today. A Case Study: How The U.S. Systematically Prevented Black Veterans From Military Benefits In World War II. Although there are many examples of how Black Americans were economically set back by the U.S., one tipping point in modern history is how lawmakers and business discrimination practices denied millions of WWII Black veterans access to GI bill benefits. The post WWII GI Bill benefits included low-cost mortgages, educational grants, and low-cost loans to start a business, which are all key wealth building and wealth transfer vehicles.    Ira Katznelson, author of “When Affirmative Action Was White,” said, “there’s no greater instrument for widening an already huge wealth racial gap in postwar America than the GI Bill.” Here are some examples of how Black veterans were negatively impacted during this time period: Housing discrimination left many Black veterans out of the suburban housing boom after WWII. In New York and northern New Jersey, there were about 67,000 post WWII GI Bill mortgages: non-white people made less than 100 of these mortgages. Black people, as well as other ethnic groups, were denied access to vocational training and college education. Even Black veterans who were lucky enough to get GI Bill education benefits faced Jim Crow laws that prevented many from going to college. No access to education benefits hampered many Black veterans from getting better paying jobs. Low paying jobs, combined with living in neighborhoods where schools had fewer resources, had its ripple effect. Their children, the baby boomer generation, were less prepared for college, and their parents couldn’t afford to send them to school. Today, the lack of inherited generational wealth also means that: Fewer Black Americans are investing. More Black Americans have high amounts of student loan debt. More Black Americans have credit card debt, most of which have crippling interest rates. While many of these issues require systemic changes to law, business, and legal practices, there are also tangible strategies Black Americans can adopt now to take charge of their finances. We delve into some of those in Betterment's annual look at Black wealth.

4 Questions To Help You Invest For Your Financial Goals There are many factors to consider when investing for the first time: Use these four questions as a guide to help you choose the best investment strategy for your financial plan. Warren Buffet’s definition of investing is, “laying out money now, in expectations of receiving more money in the future.” Investing starts with ensuring that nothing gets in the way of you “laying out money now.” This means having a solid financial foundation by doing the following: Saving three to six months’ of expenses in an emergency fund, so your savings, not investments, cover unexpected costs. Paying off high-interest debt, so you are making money from companies rather than paying interest to companies. Contributing enough to your 401k plan to at least get a match from your employer, if you’re offered one: get all the free money you can! Once your financial foundation is in place, use the four questions below as a guide to help decide how to invest your money: 1. What’s the goal for the money? Your goals should always inform what you do with your money, but understandably it can be difficult to envision long or short term life goals as events that need to be saved for. Here are some examples of life events that can be translated into financial goals: Short-term: Wedding gifts, vacations, a new laptop, an engagement ring. Long-term goals: A house downpayment, future college education, retirement. Envision all of your possible goals that may put you into debt if you didn’t begin saving for them now. Once you have a list, you can move on to determining where and how they will be invested. 2. When do you need the money? Recessions, on average, happen every five years. For this reason, some conservative investors decide to keep money needed in five years or less out of the market, while moderate to aggressive investors typically shorten this time period. For financial goals with a time horizon of five years or less, here are some alternatives to high-risk investments where you can save your money: Cash accounts: An excellent alternative to a standard savings account from your bank, cash accounts typically earn you more, have more flexible transfers, and allow you to easily access your money. Betterment’s Cash Reserve is FDIC-insured for up to $1,000,000† once deposited at our program banks, and has no minimum balance. Low-risk investment accounts: Consider investing your shorter-term goals in a low-risk portfolio instead. Betterment offers various low-risk ways to invest, and we give you the opportunity to choose any allocation, even portfolios with little-to-no stock exposure. This strategy can be useful if you are comfortable with the risk statistics provided to you while opening a portfolio and selecting your stock-bond allocation mix. If you decide you do want to invest in the market, consider these options for your money: Stocks: An investment that represents partial ownership of a company. Bonds: An investment in which you lend money to a company for a fixed rate that gets paid to you for a specified period. ETFs: Basket of investments (can be stocks, bonds, or a combination of both) that typically tracks a part of the financial market, called an index. The index can be made up of the largest companies in the U.S., such as the S&P 500. When you open an investment goal Betterment will recommend a portfolio for you when you deposit, based on your goals. Betterment will also handle the trading and rebalancing for you, so that you don’t have to. 3. How many highs and lows in the market can you stand? Everyone thinks they are an aggressive investor until the market drops: your real risk tolerance is how you feel when your investments drop by 30%. Below are three types of risk tolerance: Conservative: Values preservation of funds; can’t handle any fluctuations. Moderate: Values stability of funds; sees market volatility as a necessary evil. Aggressive: Values growth of the funds, can handle wild fluctuations for the price of growth. 4. How knowledgeable do you want to be about investing? People typically fall into three basic investment styles:  DIY: You put in the time to research, create, and monitor an investment portfolio. Most importantly, you can manage your emotions during up and down markets. Do it for me: You partner with a professional to give you financial advice and manage your portfolio. Do it with me: You tap into experts’ knowledge and research to help you select investments based on your needs. Determining how much you want to be involved with your investments and their performance will help you determine who to partner with (if at all) to help you meet your financial goals. If you fall into this last bucket, Betterment can help you meet your financial goals: as your money grows and your priorities change, Betterment’s advice evolves and helps you stay on track. Don’t forget that the most critical part of investing is getting your finances in order: if you decide to invest to meet your financial goals, having your finances in order means you won't have to cash out your investments to cover unexpected expenses. Use these four questions as a guide to help you choose the best investment strategy for your financial plan.