The Break: 40 Acres and a Mule – THROWBACK!

*Listen in to a round table discussion as KC and the family discuss what the Black community would/should/could do if ever given reparations. Podcast guests include Chris Lehman, DJ A-ski, Toria Williams, Mike Eagle, Malcolm Darrell, Tash Moseley, Brother T, Jamila Farwell, and Darius Gray.

*Parental Discretion is advised with this podcast.

The Break: What Determines the Influence of a Church (Part II)

Listen in as KC and the family continue their discussion on how size, money, worship practices and entertainment impact the influence a church has within its community. Podcast guests include Chris Lehman, Toria Williams, Malcolm Darrell, John Wood, and special guest, Sean Hill.

For comments or questions about this or any other episode, call the hotline at (323) 455-4219!


STOP: African Americans should NOT be maxing out their 401(k)

“At the bottom of education, at the bottom of politics, even at the bottom of religion, there must be for our race economic independence. “ – Booker T. Washington

If two people are running a race and one has a head start can the person behind run at the same speed as the one in front and catch up? Obviously they cannot. The African America median net worth is shown to be dead last in a 2004 report by the UCLA Center for Asian American Studies out of the four major ancestral groups studied. The current order shows Asian America 1st with a median net worth of $144,000 followed in 2nd by European America with $137,200 then in 3rd Latino America with $19,300 and bringing up the rear is African America at $12,000. Arab America was not reported but it is not hard to imagine they too are well ahead of us. It is indeed time we rethink our financial strategy.

So then why am I saying we should NOT be maxing out our 401(k)? Suze Orman told me it’s a great thing. Flag on the play. One of the major issues is we continue to try to answer African American questions with European American answers. You can’t do as another is doing when your situation is not the same as a group. Most of the so-called financial help that we see on TV is based in an Eurocentric view of American life and reality.

To max out your 401(k) would mean to contribute $16,500 pre-tax income per year or $1,375 per month into it. We currently contribute at a median of approximately $175 dollars a month or $2,100 annually to our 401(k)’s as reported in the Ariel Capital Charles Schwab Black-White Investor Annual Survey. Its not hard to see why though when the median income for African America is approximately $32,500 (Asian & European America stand at $65,500 and $54,500 respectively) according to the latest U.S. Census Bureau data so the likelihood that we would be able to reach that plateau without putting our families into poverty ($22,000 is the poverty income level for a family of 4) is as likely as a year without a rap beef given that you’d be taking the median taxable income down to $16,000 by contributing the max. I don’t know many places in America you can make it on $16,000 a year. Unfortunately as noted in the census as well 25% of African America is below the poverty line.

Let’s make sure we understand though what the 401(k) as a vehicle is built to do and what it does. The major contention with the 401(k) is that its primary investment vehicle is mutual funds. Per Investopedia a mutual fund is “An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.” These funds are “actively” managed funds. That is there is a manager who buys and trades actively trying to beat the market. They of course then past that expense on to you. Usually you can find a mutual funds management cost as the expense ratio. Unfortunately, as Motley Fool points out in its mutual fund study “more than 80% of mutual funds underperform the stock market’s average returns.” The other problem with mutual fund for African America is that it does not equate to direct ownership of any company. In a self-directed Roth IRA you have direct control of where that money is going. So you can buy Google stock directly or you can place it in Index Funds, which have historically outperformed mutual funds because they are not actively managed and so have less cost built into them leaving more money in your pocket for the long-term.

So what SHOULD we be doing as African Americans?

1)    Build a six to nine month emergency fund. An emergency fund for African-Americans is a tricky dynamic because any money we hold in cash is capital that is earning very little and could be used in building long-term wealth. However, we are also more likely to suffer job loss, hospital visits with no insurance, helping family members, and other unforeseen needs so how one manages their cash (it is king after all) balances in short-term and long-term investments might be the most vital element to wealth creation.

2)    Try to max out your Roth IRA contribution (max $5,000 per year), which will give you control of where the funds are invested and can place them in less costly investment products. If you do no more than put them in index funds, which as stated have historically had better returns than mutual funds and also cost you less. Roth IRA’s also have tax-free earnings, which means when you have to take the money out at retirement in 30 plus years you won’t have to pay any taxes on it. And as the cost of living rises you will need dramatically more dollars tomorrow than you do today for the same standard of living. Because I believe we need more equity ownership though I’d suggest no more than 50% of your Roth IRA be in index funds. The majority should be in individual stocks and bonds.

3)    Next if your company matches 401(k) contributions then put in the percentage they will match and not a penny more. Its free money and so there is no reason to pass it up. At that point you want to treat the money in the most conservative manner possible. Remember if your company is giving let’s say $0.50 for every $1.00 you put in you’ve already made a gain of 50%! At that point there is no need to get cute and become greedy with an aggressive mutual fund that as we see is almost guaranteed to lose money. Or as I tell former clients if you walk into a casino and they give you free money. Put it in a bag and walk right back out (and say thank you of course).  That is to say get the return from your company matching and then put it in a safe product. Don’t gamble the free money away in high-risk mutual funds.

4)    All monies after that should be going into either starting a business of your own or an individual (or joint) brokerage account where you will buy and trade stocks, bonds, and other investment vehicles. This by far should be your largest account as it is the account that can give you the most direct ownership of companies through direct ownership of their stocks (equity) and bonds (debt) of companies with unlimited contributions.

This is a very basic game plan to address wealth creation. Wealth creation in of itself is a simple and complex creature. But these basic steps can help you and your families get started off on the right path. Recognizing where we are in the game and that is dramatically behind in the ownership category we cannot afford to put money into investment vehicles that do not give us any. Knowing is half the battle to quote a GI Joe. Now go out there a bit more armed to build for future generations.

Mr. Foster is the Interim Executive Director of HBCU Endowment Foundation, sits on the board of directors at the Center for HBCU Media Advocacy, & CEO of Sechen Imara Solutions, LLC. A former banker & financial analyst who earned his bachelor’s degree in Economics & Finance from Virginia State University as well his master’s degree in Community Development & Urban Planning from Prairie View A&M University. Publishing research on the agriculture economics of food waste as well as writing articles for other African American media outlets.

Consumer Rap

I turned on Sirius XM Channel Shade 45 which is Eminem’s station today as I was riding about town and promptly heard this exchange between two DJs and the jest of the conversation went as followed “DJ1: Jay-Z made the Forbes 400 man. That’s big. DJ2: Oh word? DJ1: Yea oh with some guy named Warren BUFFET? DJ2: No Buffett I think. DJ1: Man I thought it was like something you eat.”

Sadly they never got Mr. Buffett’s name right. Nor did they ever correct themselves about Jay-Z. The correction is that Jay-Z is not anywhere near being on the Forbes 400 list of Wealthiest Americans. The price of admission to this list is a net worth of $1 Billion (of which only Oprah Winfrey is the only African-American present). Jay-Z’s net worth as reported by Forbes is somewhere between $150 Million as reported in ’09 and $450 Million as reported in ’10. This despite Forbes reported that Jay-Z only earning $63 Million over the past 12 Months. Forbes methodology for Hip-Hop Cash Kings, which Mr. Carter was ranked number one, includes their investments and such in their earnings and is pre-tax and management fees which usually amounts to 50% of an entertainer or athlete’s earnings. So I’ll let you ponder how or why Forbes turned $31.5 Million into a gain of $300 Million. I have my hunches but alas that’s not really what this article is about because the reality of it at the end of the day Jay-Z is one of the better businessmen that Hip-Hop has ever produced and very well might become a billionaire one day unlike many of his colleagues.

Coming back to the story at hand however. It is not surprising that many everyday people don’t know who Warren Buffett is despite his cult like following of fellow financiers and investors. Considered to be by many the greatest investor of all-time if you’re not in the finance world his name means about as much to most African-Americans as Soul-Glo would mean to a bald person. The coupling of Mr. Buffett and Jay-Z (arguably the greatest rapper of all-time) and what they promote into culture of their communities could not be more polar opposite despite both being very poignant businessmen in their own realm.

Mr. Buffett has made his wealth off frugality and investment. He has also recently (to my dismay) decided to leave the bulk of his fortune upon his demise to the Gates Foundation as part of a promotion for the wealthy to give more of their fortunes to philanthropic causes for humanity. On the very opposite spectrum Mr. Carter who came of age in the bling era has been a part of new rappers that has prided itself on the ability to promote consumerism with songs like “Ballin Remix” by Jim Jones or “Make It Rain” by Fat Joe or as Rick Ross infamously points out on “Speedin” – “I’m worth $15 Million and I’m trying to SPEND it all in one week.” The ability to consume above all and frequently with no wealth is the mantra that Hip-Hop today exudes. This is not to say that rappers don’t have a philanthropic bone in their body. Mr. Carter and others were at the forefront in giving to FEMA (for better or worse) after Hurricane Katrina devastated the Gulf Coast. However, unless you dug deep in the annals of Google would be something one would never know and these moments are few and far between.

I tweeted the other day that rappers love to tell us how to spend our very small pennies as African-Americans (we have $0.07 for every $1.00 European Americans have) but they rarely tell us how to make any. They aren’t rapping about investing in stocks, bonds, rental properties, or philanthropy. In fact the only hip-hop artist I’ve ever heard go straight to the point was an artist named NYOIL with a song called “The Investor”. Needless to say this didn’t get the airplay it deserved. Consumer rap prides itself on artist making plugs for clothing, alcohol, basically anything WE don’t own and other anti-wealth behavior for a community that is at the bottom of the wealth totem pole in this country. Given that Latinos are fairly new on the scene and have already surpassed us in wealth has me begging, crying, and screaming for us to change our behavior pattern in terms of wealth. Given that hip-hop is a way of life that way of life clearly needs a makeover and the leadership in hip-hop needs to promote that change. Unfortunately I will not hold my breathe as most artist are simply labor to a company which is predominately owned by men like Mr. Buffett. Just remember that Mr. Carter’s Net Worth is a mere 10% of Mr. Buffett at best depending on which net worth of Forbes’ you choose to use. People may say we expect too much of our athletes & entertainers to be socially conscious. The ghost of Paul Robeson just rolled over in his grave.

Mr. Foster is the Interim Executive Director of HBCU Endowment Foundation, sits on the board of directors at the Center for HBCU Media Advocacy, & CEO of Sechen Imara Solutions, LLC. A former banker & financial analyst who earned his bachelor’s degree in Economics & Finance from Virginia State University as well his master’s degree in Community Development & Urban Planning from Prairie View A&M University. Publishing research on the agriculture economics of food waste as well as writing articles for other African American media outlets.