What are the characteristics of this new cohort of retail investors?
With money in the bank, few options for spending, and time on their hands, a new generation of retail investors has emerged during the pandemic.
But who are they?
Canadian researchers from trend-tracking firm RIWI Corp. and the Rotman School of Management’s FinHub (The Financial Innovation Lab) at the University of Toronto have investigated.
They reached out to more than 1,600 first-time investors and nearly 2,500 established investors in the US and found that new investors tend to be younger –even still in high school or university - with lower incomes (mostly below US$50K) and tend to make riskier investments.
While half of the new investors were aged 16-34 it is not fair to say they are necessarily the ones taking bigger risks, noted study co-author Danielle Goldfarb, RIWI’s Head of Global Research.
“While the overwhelming focus of the public discussion tends to be on younger investors, these data show that new investors over-35 years of age are particularly susceptible to engage in riskier behaviour,” she said.
The study also reveals that new investors typically have a shorter investment horizon and are more likely to get their investment information from less conventional sources, such as Reddit discussion boards.
Their investment platforms of choice are often discount brokerages or startup platforms (45% said this across all ages). Meme stocks and SPACs are more of interest to new investors than for established ones.
Debts versus retirement
The study also shows that paying off debts is as much of an investment goal for new investors under 35 as saving for retirement, although this is not the case for older newbies.
“Throughout the COVID-19 pandemic there’s been a surge of interest in stock market trading by retail customers but no detailed, reliable data on who the new investors are and on what motivates them. This study aims to fill that gap and benchmark this new phenomenon,” said study co-author Andreas Park, Professor of Finance at the University of Toronto, and director of the FinHub.
