The ongoing COVID-19 pandemic has had significant effects on all facets of our lives. Some of these effects have been short-term, like wiping down packages before bringing them in the house. Others have been longer term, like the way people shop for groceries (curbside pick-up) and use of QR code menus by restaurant owners.
Many, if not most, of the pandemic economic outcomes have been extremely negative — the permanent closure of so many small businesses, the reduction in business operation caused by staffing shortages, not to mention our nation’s supply chain disruptions impacting the cost of goods. But there has been one surprising positive from the pandemic, and that was the surge in retail investing in 2020.
According to JMP Securities, individual retail investors opened 10 million new brokerage accounts in 20201, and this growth did not slow down into 2021. JMP estimated more than 7 million new retail clients entered the market in January and February of 20212.
Why are retail investors setting records for getting into the market?
- Cash is not currently providing growth. Two-year U.S. Treasuries are yielding 0.21% (as of 9/3/21). That means if you invest $100, in two years you will get your $100 and a whopping 21 cents in interest. Locking in your $100 for 30 years in the 30-year U.S. Treasuries will earn you $1.94 in interest!
- Costs have been lowered. Since 2019 many of the largest brokerages, like Charles Schwab and Fidelity, stopped charging trading commissions. By not charging commissions, investing has become more accessible to those whose investment accounts are not 5 or 6 figures.
- Apps are more available. According to download data from SimilarWeb, more than 6 million new investors used Robinhood2. While Robinhood has been charged with failing to satisfy best execution, there are many other mobile, easy-to-use platforms.
Who are these new investors?
A recent Schwab survey showed a diverse cross-section of new investors with ages falling between 21 – 75. The survey found that nearly half invest in the stock market, and 15% of those that invest began investing in 20202. Now dubbed the “Generation Investor,” these new investors are different than other generations since they are not delineated by the year the member was born, but rather by the year they began their journey into the market. The median age of Generation Investor (Gen I) is 35, which is a decrease from 48 when compared to the pre-2020 investors. Moreover, the make up of Gen I spans all the traditional generations of Millennials, Gen X, Gen Z, and Baby Boomers.
There have also been positive trends within the non-Gen I investors. Many other Americans had already started their journey by investing in their employer-sponsored 401(k) plans. Voya Financial, an insurance, retirement, and investment company, found that 72% of their plan participants who changed their savings rate in the second quarter of 2021 actually increased it3.
The COVID-19 pandemic brought economic shutdowns, high unemployment rates, and market volatility; but it also highlighted that individuals should prioritize saving over spending. Depending on the individual situation, saving may mean starting an emergency savings fund, increasing one’s contributions to retirement funds, or funding a 529 Plan for a child’s tuition. If saving over spending is already a priority for your family, the next important financial matter for you could be transitioning to a focus on retirement planning. Voya’s research shows that over 60% of Americans believe that the pandemic has made them more focused on planning for retirement.
Whether you are a seasoned investor and retirement planner, a member of Generation Investor, or just focused on building up your emergency fund, please reach out to the advisory team at McKinley Carter Wealth Services with your questions about next steps or how to get started.