Retail investing: Pandemic spurred new generation of investors, says survey

Fifteen percent of current US stock market investors say they first began investing in 2020, according to a new survey from Charles Schwab. The firm says these ‘Gen I’ investors are bullish about their futures – and the market – but its survey also points to a group taking risks.

New platforms that make it easier and cheaper for retail investors to get involved in the market have in part fueled the boom, says Jonathan Craig, senior executive vice president and head of investor services at Charles Schwab, warning that they now require ‘the tools and services…to be successful over the long term.’

He says in a statement: ‘We’ve seen tremendous growth and engagement among individual investors over the past year as a result of lower trading costs, new products and services aimed at greater ease and accessibility, and the investing opportunities presented by market volatility. A big part of this growth is ‘Generation Investor’ – the large number of people who are bound together not by their birth years but by when they got started in their investing journey – who are now on a path to ownership and reaching their financial goals.’

Comparing this group of 2020 first-time investors with those that had been in the market pre-pandemic, Charles Schwab notes that they are more optimistic about the US stock market, more likely to think the market will increase in 2021, plan to spend more time managing their portfolios and plan to invest more in the future – something 43 percent say they plan to do once the pandemic subsides, versus 20 percent of pre-2020 retail investors.

These new investors – half of whom are millennials, a fifth Gen X, 16 percent Gen Z and 11 percent baby boomers – also earn around $20,000 a year less on average than pre-2020 investors and are more likely to have taken a financial hit from the pandemic.

The survey points to a new generation of retail investors with a poor understanding of the risks and returns involved. Almost two-thirds do not have a written financial plan in place, while many admit that they have not thought about the tax-efficiency of their portfolio (41 percent) or do not fully understand how fees work (51 percent). Many also report having big life changes on the horizon.

In fact, Charles Schwab says that for Gen I, the biggest surprise during their first year of investing was ‘learning that investing is more about long-term gains then short-term wins’. It says these new investors have incorporated this lesson into their investment approach for 2021: In their first-year investing, 44 percent reported investing for short-term gain, versus 56 percent for the long term. In 2021 those numbers have shifted to 28 percent and 72 percent respectively.  

Covering the Reddit retail investor stories earlier this year, Ben Ashwell, IR Magazine editor, reported on the concerns among regulators regarding the influx of new retail investors in the past year, noting that there are efforts within the IR community to build stronger relationships between issuers and retail investors. ‘Stockperks and TiiCKER are both striving to incentivize retail investor engagement through perks, while Nasdaq published an educational hub for retail investors last year,’ he wrote.