The ability to put just a few extra bucks into stocks. A pandemic panic that drove stock prices way down for many companies that have a future ahead. Easy to use apps.
And throw in a little extra cash via government stimulus checks and some extra time when major league sports teams stopped playing during the pandemic, you couldn’t see a movie at a theater and college graduates started working remotely back home.
All of those factors contributed to growth among new investors in 2020.
Sure, many of us who are accustomed to setting aside a little bit of each paycheck in our 401(k) plans didn’t see this one coming. Maybe we heard a college student in the family talking about stock picks. We certainly couldn’t help but notice as we watched the GameStop battle unfold in the headlines in January.
But now you’ve got to wonder who are all these new investors, many times younger investors, who seem to have some power to move markets?
‘Perfect storm’ for new investors
More than 10 million new brokerage accounts were opened by individuals in 2020 — more than ever in a year, according to an estimate by Devin Ryan, equity research analyst at JMP Securities.
Last year created the “perfect storm” for investing, Ryan wrote. The brokerage industry moved toward zero on commission rates late in 2019, making it less expensive to invest, and there was an “unprecedented backdrop created by the COVID-19 pandemic.”
We saw extreme market volatility, more people working from their home offices and kitchen tables, and more digital transformation, including the customer’s willingness to trade stocks via brokerage apps.
Hezekiah Lockridge, 21, opened his first brokerage account in late 2020 after his mentor at his company, Citizens Bank, suggested that he try out the stock market. He uses a brokerage app.
He owns one stock, Apple, and plans to invest in other stocks, possibly in a smaller upstart, at some point. He has about $2,000 in a brokerage account, half in Apple.
Lockridge graduated in December 2019 from the University of Michigan-Dearborn with a degree in finance. And he remembers going to school and hearing it drilled into his head that people need to save for retirement early in life and take some risks to be able to retire comfortably at age 65.
“Right now, having it in a savings account doesn’t get you anywhere,” said Lockridge, who lives at home in Ypsilanti, Michigan, and works remotely.
Low interest rates, even with CDs, aren’t very helpful to savers.
“The stock market is the only option to grow your money.”
New investors are younger, more diverse
A newly released report called “Investing 2020: New Accounts and the People Who Opened Them” outlines some interesting trends.
New investors tend to be young, lower income and more racially and ethnically diverse, according to the collaboration by the FINRA Investor Education Foundation and NORC at the University of Chicago.
The study was done in October 2020 after the market meltdown in March but before the wild show in January where everyone watched the battle between the hedge funds and everyday traders.
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GameStop’s stock price hit $483 a share in trading on Jan. 28. The videogame seller closed at $325 a share on Jan. 29 — its highest price after a social media frenzy where investors on Reddit’s WallStreetBets drove the stock higher and higher.
Back in early October, GameStop was trading around the $9 a share range.
But the first week of February proved to be brutal with GameStop trading around $70 a share.
The research involved surveying 1,291 households from NORC’s probability-based panel. The survey was fielded between Oct. 26 and Nov. 13, 2020.
Based on the survey, 57% of the respondents opened a new taxable investment account in 2020. Among investors who opened a new account in 2020 in the sample, 66% were new investors who had not previously owned a taxable investment account, making this…