The wave of new, individual investors who flooded stock markets in 2020 have not drained away, even as market conditions have become increasingly unfriendly.
A new survey catching up with people who started brokerage accounts in 2020 said three-quarters of them are still maintaining their accounts.
Compared with people who had brokerage accounts before the pandemic and opened additional accounts in 2020, newer investors have pulled money from their accounts at greater rates and fewer have added funds, according to researchers at the FINRA Investor Education Foundation, NORC at the University of Chicago and the Securities and Exchange Commission.
But the findings still suggest “the observed expansion of investors in 2020 was not merely a temporary uptick related to the pandemic or market conditions, but a durable rise in the investing population,” the authors said Tuesday.
When rookie investors waded into the market in 2020, COVID-19 enmeshed the economy in lockdowns and reopenings. The recent follow-up survey comes during a different backdrop.
Last year, the Dow Jones Industrial Average
and Nasdaq Composite
had their worst annual performance since 2008 amid four-decade-high inflation and recession worries. The Dow is down 0.8% so far this year while the S&P 500 is up more than 3.5% and the Nasdaq is up 10%.
Stocks closed sharply lower in a Tuesday sell-off after Federal Reserve Chairman Jerome Powell told senators the central bank is open to steeper interest-rate hikes. The Fed began increasing its benchmark rate to quell inflation last March, and its next meeting is scheduled for March 21-22.
Still, the turbulence hasn’t scared off many newer investors, researchers said. Almost four in 10 new investors, 39%, said they have added and not withdrawn money from their account. Nearly half of experienced investors, 46%, said the same.
But new investors were about twice as likely to pull money, the survey showed. While 16% of experienced investors withdrew money, 31% of new investors pulled money.
They’ve gained more investing know-how — “though there is still vast room for improvement,” the authors said. (The survey included a five-question quiz.)
Some of that know-how may be a realization they don’t have the time or expertise to make all of their investment decisions by themselves. More are turning to professional investment advice instead of relying on their own research, the data shows. One-third of new investors said they now use financial professionals as sources for investing information, versus 24% in 2020.
These investors said they rely less now on news media for their investing decisions, at 26%, versus 33% previously.
But the reliance on social media, and friends and family, was basically unchanged. A little over one-third, 35%, said friends and family were an information source and 16% counted social media as a place for information.
The newer crop of investors have kept their stomach for risk, the data suggests. While 22% of experienced investors said they had cryptocurrency in their portfolio, 28% of newer investors said they did.
While the recent survey asked about cryptocurrency in particular, the 2020 version of the questions asked about “alternative investments” including crypto. At that time, 14% of new investors said they had these investments, compared to 19% of more experienced investors.
The value of bitcoin
is up more than 30% year to date, but down 40% over the past 12 months.
The survey is one glimpse at the profile of new investors. During September, pollsters were able to follow up with 480 of the people they reached in fall 2020. Two-thirds of the recent participants were newer investors.
Meanwhile, other data says there are still millions of people who are not investing.
Nearly six in 10 people (58%) directly or indirectly owned stock last year, according to Gallup. That’s up from 55% in 2020, but Gallup’s pollsters said that’s still inching below the roughly 62% who owned stock for most of the 2000s.
But the latest survey fits with other research that says individual investors have staying power.
During January, retail traders bought equities at a clip faster than the frenzied days of the GameStop
meme-stock mania of 2021, according to Vanda Research, a research firm that regularly studies trends and patterns for retail investors.
What happens next for these newer investors is unknown, the authors of the new study wrote. “But it does seem likely that the new investor cohort from 2020 will both shape and be shaped by how America invests,” they said.