Schwab is out with a new study that contains a stunning finding: 15% of today’s U.S. stock market investors began investing in 2020.
It seems that last year’s scary market drop had the exact opposite effect of what happened during the Great Recession. In 2007, Gallup said 65% of U.S. adults had money in the stock market. After the market went on to lose more than 50% from its late 2007 high, just 55% had money in the market.
Last year, it was a very different story. After a pandemic-induced rout, in which the S&P 500 lost 34% of its value in just 16 trading days from mid-February to mid-March, people didn’t exit the market, they entered. In 2020, some 10 million new brokerage accounts were opened. Why the change this time?
The Schwab study doesn’t address that question, so we’re left to speculate. It appears that social media may have played a role. There were some well-publicized cases of popular personalities live-streaming their day-trading and encouraging their millions of followers to join in, curing their lock-down boredom by “buying the dip.” Then, of course, there was the Reddit group, marshaling millions of others to run up the prices of GameStop, AMC, and other stocks. The suggestion that there was easy money to be made in the markets seemed to have an effect. For some traders, stimulus money only put fuel on the fire.
Teenagers trading their trust funds?
Something the Schwab study does address is the question of who these new investors are. It turns out they’re not just young people. The median age of “Generation I,” as Schwab has labeled the class of 2020, is 35 (vs. 48 for investors who got started before 2020). Here’s a closer look at the age segments:
Not surprisingly, these new investors have lower incomes than people who started investing before 2020, with an average annual income of $76,000 vs. $94,000. They are motivated to invest more by the prospect of generating an additional source of income (53%) than as a way to prepare for retirement (46%).
There’s nothing like putting some real money to work in the real market to learn about investing. Here are the biggest surprises noted by Gen I during their first year of investing.
A decent number of Gen I investors say they plan to make some changes as a result of the lessons they learned last year. In 2020, 44% of Gen I acknowledged trading for short-term gain, whereas in 2021 a much smaller number (28%) said they planned to do so.
The Schwab study points to a great opportunity for churches that teach financial stewardship to reach this new generation of investors. If you’re part of the stewardship team at your church, why not approach your ministry leaders and suggest a class for new investors? SMI’s Multiply study is tailor-made for this opportunity, teaching a biblically-informed, highly practical approach to investing.
If you need some help getting started, please let us know.
What are your thoughts about last year’s big influx of new investors?