A large proportion of private investors started during the pandemic, as the Schwab survey shows
Pedestrians walk past a Charles Schwab bank branch in downtown Chicago, Illinois.
Christopher Dilts | Bloomberg | Getty Images
The pandemic has brought a flurry of new retail investors to the stock market, and a survey by Charles Schwab seeks to gauge the size of this new generation of traders.
Based on an analysis of around 500 investors, the broker determined that 15% of current private investors will be in the market as of 2020. Schwab, who now has 31.5 million private customers and $ 6.9 trillion in assets due to the boom in retail investment, is calling this new wave of investors “Generation Investor”.
“A big part of that growth is Generation Investor – the large number of people connected not by their years of birth but by the beginning of their investment journey – who are now on their way to becoming owners and achieving their financial goals. “said Jonathan Craig, Senior Executive Vice President and Head of Investor Services at Charles Schwab.
The company surveyed 1,000 Americans, ages 21 to 75, from various populations and found that 476 of those surveyed invest in the stock market. Of the almost 500 investors, 15% started on the stock exchange in 2020.
Retail has just completed a record year in 2020, when unprecedented market volatility and Covid lockdowns presented a unique opportunity for regular investors to play the stock market’s surprise comeback. JMP Securities estimates that the brokerage industry gained around 10 million new customers in 2020, according to SimilarWeb app download data. More than 6 million of these customers flocked to Robinhood.
The retail boom continued into 2021 and was compounded by the epic short squeeze in GameStop stock in January. JMP estimates that more than 7.8 million new residential customers entered the market in January and February.
Schwab noted that these new investors aren’t just young people. They are also an older cohort who first discovered they were investing. Generation Investor has an average age of 35, compared to pre-2020 investors who average 48 years, Schwab said. More than 50% of Generation Investors are Millennials, 22% are Gen X, 16 are Gen Z and 11% are Baby Boomers.
Schwab found that Generation I was more financially affected by Covid-19. About 55% of respondents said they started building an emergency fund during the pandemic, and 53% said they were receiving an additional source of income.
Generation investor in the future
This new class of investors is more optimistic in the market than those who started stocks before 2020.
Almost three-quarters of Generation Investor are optimistic about the US stock market, while 63% of investors are optimistic about the future of the major averages ahead of 2020, according to Schwab. In addition to the original survey, Schwab sought out other Generation Investor members to determine the sample size 200 and to ensure that the group was large enough to produce statistically significant results.
More than half of Generation Investor expect the stock market to grow in 2021, compared to 44% of pre-pandemic investors.
Schwab’s survey also found that 43% of Generation Investors said they would invest more in the stock market, while only 20% of pre-pandemic investors said they would put more money into work from here.
“While it is exciting to see this new breed of investors, the industry now has a call to action – to provide this group with the tools and services they need to be successful over the long term,” said Craig.
Thirty percent of Generation Investors said they would like to spend more time managing their portfolios, while 19 percent of investors said so before 2020.
Favoring short-term profit
Millennial investors, especially those via the stock trading app Robinhood, have been criticized as the Reddit-loving day trading army that drove GameStop stock soaring in January.
However, the appetite of newbies for short-term gains is decreasing. While 44% of Generation Investor traded short term in 2020, only 28% said they would do so in 2021.
“This group is not just made up of short-term risk takers. They want to make informed decisions based on education and professional advice. This is important in managing various life events,” said Andrew D’Anna, senior vice president of Schwab Retail Customers Experience.
“Now that they have got their toes on investing, Gen I is keen to continue learning and developing its strategies for long-term successful wealth-building,” he added.
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