It’s not a mirage: there really has been an influx of new investors into the stock market during the Covid-19 pandemic, according to new research from the FINRA Investor Education Foundation.
The investor education arm of the U.S. self-regulatory organization published a paper confirming that a large new crop of investors entered the market in 2020.
Based on a survey carried out with NORC at the University of Chicago in late October and early November, the research found that 38% of respondents who had never had an investment account before opened a non-retirement investment account in 2020.
Another 19% of new accounts were opened by investors who already had other accounts, and 43% of respondents had an existing account but didn’t open a new one.
“In a year when a pandemic gripped the world, beginning and experienced retail investors flocked to the stock market,” the FINRA Foundation said in a release detailing the results of the research.
These newer investors were typically younger (under age 45), more racially diverse and with smaller holdings than existing investors, the researchers found.
The FINRA Foundation also noted that the ability to invest with small amounts, and the fact that market drops made stocks cheaper, were the top reasons for new investors entering the market.
“The spike in new investors demonstrates that people, given access and opportunity, will take steps to participate in the equity markets, potentially benefiting from the historically higher long-term returns these markets offer,” said Gerri Walsh, president of the FINRA Foundation.
The top product for new investors was individual stocks, which were owned by 64% of respondents, followed by mutual funds (28%) and ETFs (25%).
The survey reported that nearly half of new investors (48%) said that they accessed their account primarily through a mobile app, whereas for experienced investors, most (75%) used a website to access their account.
The research also found that investment knowledge is low for all groups, particularly new investors, and that across all categories, “a large number of investors reported not knowing whether their investment account charged commissions on trades or whether their account allowed purchasing on margin.”
Additionally, new investors were more apt to rely on advice from friends and family to inform their investing decisions, whereas existing investors more often relied on professional advice, and experienced investors who opened new accounts were more likely to do their own research, the report noted.
“On the one hand, this research offers the investment industry, investor advocates and policymakers critical insights about pathways to financial inclusion,” Walsh said. “On the other, low levels of investment knowledge among all types of investors in the sample — new and experienced — underscore the importance of educating investors about risk and reward, costs and fees, tax consequences of investing and other key concepts.”