Maggie Cervantes took the right steps in life. She has a master’s degree, bought her first house at 36, and works at a job she loves. But like many people, she started saving for retirement later in life.“When I turned 40 I recognized that if I’m going to live another 40 years—both my parents are in their 80s—what does that mean for me when I turn 65?” says Cervantes, who is now 51. “That means I’m going to need more income.”
She started putting away $5,000 of her annual income in a retirement plan and then worked her way up to $15,000 a year.
When she saw much of that investment shrinking in an economic downturn, she went to a financial adviser who helped her widen the scope of her retirement portfolio, diversifying where she was investing her money.
“For me it was having that conversation with myself about my needs and wants for the future,” Cervantes says. These are the types of conversations that take place at New Economics for Women (NEW), the Los Angeles-based organization Cervantes runs. NEW works with Latinas who are single parents, low-income families, and disinvested communities.
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WEALTH GAP WIDENS
Cervantes’ decisions and her work represent a push among Latinos to build financial assets—an ever-important step among a population whose wealth now lags behind white Americans at a record level. A recent study by the Pew Research Center found that the median wealth of whites is 18 times that of Hispanics and 20 times that of black households. This is the biggest disparity in wealth in 25 years, thanks in part to the recession and plummeting home values, which have fallen most deeply in states that are home to many Latinos, namely California, Florida, Nevada and Arizona.
Household wealth is the sum of assets (including homes, cars, bank accounts, and stocks and bonds) minus debt (such as car loans, mortgages and credit card balances). In 2009, the median net worth of Hispanic households was just $6,325, compared to $113,149 for whites. The median for black households was $5,677.
But another major difference contributed to the gap: In comparison to blacks and Latinos, many more white Americans own stocks, 401(k)s, or individual retirement accounts. So when stocks rebounded after the recession as housing values remained sluggish, white Americans stood to benefit more, the Pew Center concluded.
INVESTMENT LAG
So why don’t more Latinos invest in the stock market?
Many Latinos see owning a home as achieving the American Dream. But the housing market crisis all but obliterated that dream.
Louis Barajas, a certified financial planner and author of My Street Money who counseled Cervantes, blames a lack of education on wealth building.
“In many barrios and Latino communities, our financial planners are the real estate agents,’’ he says. “Everybody in a Latino community knows someone with a real estate license. That is how we have figured out how to create wealth. Unfortunately, in a new economy real estate doesn’t go up forever.”
On the retirement front, much of the problem stems from lack of access, says Leticia Miranda, associate director of the Economic and Employment Policy Project at the National Council of La Raza. “Two thirds of Latinos work at companies that do not offer employees any type of retirements plans,’’ she says. Because Latinos are younger and make less money, they are less likely to participate when companies do offer them. One way to increase this participation is through automatic enrollment.
“When a company automatically enrolls you in a plan, the likelihood of participation skyrockets, no matter the age or income level,’’ Miranda says.
Women who leave the workforce to raise kids are particularly vulnerable in retirement because they don’t receive Social Security credit for that time. Many are hoping to see federal policy that will change that, she says.
Julie Stav, financial expert and author of Fund Your Future and Get Your Share, points to a lack of brokerage platforms in Spanish. “You will see Chinese and even Portuguese, but in my efforts to reach out to online brokers, I found no interest in investing in this growing community,’’ she says. There are also many misconceptions about investing, Stav says, such as the idea that in order to invest you have to have a lot of money and a formal education, or know someone in high places.
“I have radio listeners who used to pick strawberries in the fields of Oxnard, California, and who are successful investors today,” she says. Her website, La Comunidad Tu Dinero allows members to sign up free, share their successes, and help others learn to invest.
MORE “PROCESS THAN PRODUCT”
When in comes to investing, many are turned off by daily news reports on the volatility of the stock market and choose to stick to homeownership.
“Real estate is a great long-term investment; the problem is it should not be your only investment,” says Barajas, whose forthcoming book written with his wife, Angie, Small Business, Big Life For Women, is due out this year.
Barajas stresses that financial planning is more about a process than a product. “Nobody should be selling you anything until you’ve talked through what this is all about and what you are trying to do,” he says.
Barajas suggests the following:
- Set goals. Know the goals and the time frame of your investment at the outset—whether you are saving for a college education that is five to 10 years away or retirement 25 years down the road.
- Start early and invest for the long term. The best time to start putting money away is in your 20s and 30s, and to keep contributing.
- Diversify your investment portfolio. This means understanding that assets come in different classes. Some are cash assets, such as a savings account or a money market account. Others are fixed, meaning investors are locked in for an extended period of time, such as in a long-term CD, or a corporate bond. And still others are equity based, like real estate and stocks, which can fluctuate in value over time. Selecting the right combination of assets can depend on how long you have to invest. The longer you have, the more appealing an equity investment might be. A short-term investment may involve a two-year CD. Consider investing in mutual funds, which can help minimize risk because they involve stock in many companies, not just one.
- Do what works for you. Do not get swept up by what television investment gurus say and do not blindly follow what your friends, neighbors, or coworkers are doing because their situation may be entirely different than yours.
Julie Stav recommends:
- Pay yourself first. Many people expect to have money left over at the end of the month to put away, she says. But this rarely happens. Stav recommends “stealing” 5 % to 10% from yourself every time you get paid. Use this money for the next step.
- Fill your financial drawers! “If you had three drawers in your chest, where would you put your underwear—top, middle or bottom drawer?” Stav says. “Chances are, you would put it in the top because it’s more accessible. Your money works the same way.” Think of these compartments in this manner, Stav says:
- The top drawer is for the money needed for expenses, emergency savings, and anything you don’t want to tie up or risk. Anything you might need between now and two years from now.
- The bottom drawer holds your retirement accounts (IRAs, 401(k), et cetera). This is for the money you feel you won’t need until you turn 59 1/2, the magical age when there are no penalties for withdrawals.
- The middle drawer is the “greed drawer.” This drawer has the money you can do without for 2 to 5 years. This is the money you invest.
