A combination of factors, including the ability to trade stocks cheaply and in small quantities, as well as pandemic-driven market dips, caused both beginning and experienced retail investors to flock to the stock market last year, according to research by the Finra Investor Education Foundation and NORC at the University of Chicago.
Among survey respondents who opened new accounts in 2020, investing for retirement was the most frequently cited reason for opening the account, despite the study’s focus on taxable investing.
The study, Investing 2020: New Accounts and the People Who Opened Them, found that the majority of new investors — defined as those who opened a non-retirement investment account for the first time during 2020 — were under age 45 and had lower incomes than investors who already owned taxable investment accounts. New investors also were more likely to be racially or ethnically diverse.
Respondents from 1,300 surveyed households were grouped into three categories: new investors,who opened one or more non-retirement investment accounts during 2020 and did not own a taxable investment account at any time before 2020 (accounting for 38% of the total); experienced entrants, who opened a taxable investment account during 2020 and also owned an existing taxable investment account opened before 2020 (19%); and holdover account owners, who maintained a taxable investment account that was opened before 2020 but did not open a new account during 2020 (43%).
The survey found that the largest portion of African American investors (17%) were new investors, and the largest shares of Hispanic/Latino investors were new investors (15%) and experienced entrants (17%). New investors held smaller balances in their taxable accounts when compared to other investors, with 23% of female investors reporting balances under $500, compared to 15% of male investors.
While all investors reported relying on a variety of information sources when making financial decisions, holdover account owners more frequently relied on financial professionals, while experienced entrants more frequently conducted their own personal research. New investors more frequently relied on the advice of friends and family.
The survey found that investment knowledge was low among all groups, and particularly low for new investors.
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