News Column

Portrait of the Hispanic Investor

March 2006, Hispanic Business Magazine

Joel Russell


"The data point to Hispanics emerging as prime consumers of upscale products and services, including financial planning and investment services," according to the HispanTelligence® report, The U.S. Hispanic Economy in Transition: Facts, Figures, & Trends.

Statistically, the typical Hispanic investor:

• Has about 7.3 percent of his/her wealth in a 401(k) account, and about 7.2 percent in stocks or mutual funds, according to the 2004 Pew Hispanic Center study The Wealth of Hispanic Households: 1996 to 2002. By contrast, only 2.9 percent of Hispanic wealth, on average, is in an Individual Retirement Account or Keogh plan (for the self-employed).

• Owns a home and "interest-earning" assets, such as a savings account or certificates of deposit. These two asset classes represent the favorites of Hispanics, owned by 47.3 percent and 42.4 percent of households, respectively, the Pew study reports.

• Ranks among the wealthiest segment of the U.S. Hispanic population. The Pew study found the top 25 percent of U.S. Hispanics control 93 percent of this market's wealth.

• Represents a growing economic segment. Census Bureau data indicate that 16.5 percent of Hispanic households fell in the $100,000-plus net worth brackets as of 2000, up from 11.5 percent in 1995 (see table.)

But a real individual investor is more than a composite of numbers, and very different than an average.

Market Recognition Dawning

"The affluent U.S. Hispanic investor tends to be more self-directed than his/her general market counterpart," says Mario Paredes, director of the Hispanic American Market at Merrill Lynch. In his opinion, "Less than 50 percent rely on someone for financial advice. We believe this is not a result of a greater need for independence."

Rather, Mr. Paredes believes Wall Street generally has overlooked wealthy Hispanics as a separate investment market niche. While organizations such as Freddie Mac, the Department of Housing & Urban Development, and credit unions have sold the concept of home mortgages to Hispanics successfully, similarly broad-based efforts have not been mounted to pitch financial investment advice to high-asset Hispanics. But now, "as the non-Hispanic white market becomes more saturated, firms are seeing fertile ground for growth among Hispanics," Mr. Paredes continues.

Neil Santo Tomas, a vice-president at AXA Advisors in Los Angeles, says his Hispanic clientele consists mostly of men in their 50s who own a business. AXA often begins serving the business owner by handling the company's retirement accounts, and then helps organize the CEO's personal investments. "With stocks, they tend to invest in blue chip companies that pay a consistent dividend," Mr. Santo Tomas adds. "They prefer name-recognition companies like Wal-Mart, Microsoft, General Electric, or Home Depot."

This shift in the balance of assets from one's business to other investments is one driver of a growing sophistication among U.S. Hispanic investors, according to The U.S. Hispanic Economy in Transition. "Increasingly, Hispanics are shifting to a more balanced investment portfolio by boosting allocations in interest-earning assets, stocks, and mutual funds."

Dynastic Intentions

Because of their age, high-asset Hispanic investors typically have a 15- to 20-year time horizon until retirement. Their investment priorities are securing their own retirement and transferring wealth – often their company – to the next generation, says Mr. Santo Tomas.

"According to our research, a higher percentage of affluent Hispanics than non-Hispanic whites said their investment objective was to preserve their wealth for future generations," adds Mr. Paredes.

While housing remains the largest asset class among Hispanics, the fastest growing are 401(k) and thrift accounts, the Pew study found. Between 1996 and 2002, the percentage of Hispanics with such accounts increased from 13.4 percent to 18.5 percent. With the exception of U.S. Savings Bonds, ownership of other types of financial assets increased during this period.

In terms of investment tactics, Hispanics "are typically buy-and-hold clients," Mr. Santo Tomas says. Also, his primarily business-owning clients tend to stick with their strategy rather than chase trends or movements in the market. "Most don't want to change their portfolio, although we may add investments, when it's performing to expectations."

Low-Hanging Fruit

Geographically, "45 percent of affluent Hispanic households are concentrated in five key markets: New York, Los Angeles, Miami, Chicago, and Houston," Mr. Paredes reports. HispanTelligence data show that:

• Miami has the highest concentration of upscale Hispanics, with 10.1 percent of Hispanic households in the $100,000+ income bracket.

•In Los Angeles, 8.5 percent of Hispanic households reach the same category.

•Chicago has the highest proportion of Hispanics (50.4 percent) in the middle income bracket, defined as $35,000 to $99,999.

For financial marketers, the concentration of affluence is "a characteristic that makes targeting Hispanics relatively efficient," says Mr. Paredes.

Gathering Force in Money Markets

Future growth of the affluent Hispanic population will translate into more Hispanic investors and larger portfolios among those already engaged in the capital markets.

"The more traditional view of Hispanics as a growing consumer force also has begun to broaden to a savings and investment force," according to The U.S. Hispanic Economy in Transition. While Hispanics now account for 14.1 percent of the total U.S. population, with purchasing power projected at $1 trillion, "they
are no longer driven by sheer volume."


Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters