NEW RETAIL INVESTORS: TAKING ADVANTAGE OF MARKET OPPORTUNITIES
What is the strategy, and how are new retail investors taking advantage of the opportunities in the market?
Citing the article "Who Owns Euromoney Institutional Investor?" by Malcolm Wardle, let us first define what a retail investor is.
"A retail investor is an individual or nonprofessional investor who buys and sells securities through brokerage firms or retirement accounts like 401(k)s. Institutional investors do not use their own money—they invest the money of others on their behalf."
In the article "U.S. retail investors scooped up stocks during Thursday's market drop," Reuters notes that retail investors bought during a sharp stock market decline in just one day. This trend suggests that these investors look for opportunities in times of volatility and low prices to buy stocks with long-term growth potential.
Buying stocks during market dips is a tactic known as "buy the dip" and is a way of taking advantage of market fluctuations to buy stocks at lower prices. Retail investors, primarily young and with access to online investment platforms and applications, have shown an ability to identify moments of volatility and act accordingly.
Another exciting aspect is that they can diversify their portfolios by acquiring shares from different sectors and companies, thus minimizing risks and increasing their chances of future profits. They generally favor companies with innovative business models. The "buy the dip" strategy can be attractive and profitable in the long term, but it is also essential to consider the associated risks. Not all market declines represent investment opportunities.
Who is the new retail investor?
According to a 2021 Deloitte report titled "The Rise of Newly Empowered Retail Investors," most retail investors are young, with an average age of 34, and many are new to the investing world. 40% of these investors started investing in 2020.
A study conducted by FTI Consulting in October 2021 shows the characteristics and preferences of new retail investors. The report indicates that in addition to being predominantly young, these investors are diverse. For example, compared to more traditional investors, there is a higher proportion of women and ethnic minorities involved in the stock market, suggesting a diversification in the investor base and greater investment interest among these demographics.
The origin of the wave of new investors in retail during the pandemic
According to the survey by Charles Schwab published on CNBC, many of these investors began investing during the COVID-19 pandemic. This phenomenon may be related to several factors, including increased leisure time due to lockdown restrictions, the availability of additional funds from decreased travel and entertainment spending, and the search for investment opportunities during economic uncertainty.
Charles Schwab's survey shows that 63% of respondents started investing through online investment apps, demonstrating these tools' crucial role in democratizing access to the stock market. Apps and platforms have lowered the barriers to entry and allowed more people to participate in the stock market efficiently and affordably.
Attitudes and Expectations of New Investors in Retail.
The survey also reveals, for example, that 44% of respondents expect their investments to provide additional income. In comparison, 28% hope their assets enable them to achieve financial independence, which indicates that new retail investors are optimistic and have high expectations about their investments' growth potential and profitability.
The idea that these investors invest solely in emotions is far from reality. Many of these investors spend time and effort researching and learning about the market and the stocks they invest in, allowing them to make more informed and rational decisions.
With new retail investors heavily reliant on multiple sources of information online, they have become good at filtering relevant and valuable information out of misinformation and noise. The ability to discern information quality and identify reliable sources is essential to making informed and responsible investment decisions, including cross-checking information from multiple sources, seeking expert opinions, and staying abreast of general market news and trends.
The search for information and investment tools: Technology as an ally of new investors
Online investment platforms and apps like Robinhood, Betterment, and Ellevest have given them faster access to the stock market. These tools have removed traditional barriers to entry, such as high fees and minimum capital requirements, and have provided retail investors with the information and resources to make informed investment decisions.
The FTI Consulting report also notes that most new retail investors spend time researching and learning about the stock market, using online resources and investment apps that allow them to analyze and understand market behavior. This information shows that while these investors may be new to the investment world, they are committed to making informed and responsible decisions.
Retail investors often turn to online forums like Reddit and social channels like YouTube, TikTok, Twitch, Twitter, and Facebook to share information, discuss investment ideas and learn from their peers and experienced investors. As highlighted in the Deloitte report, this online interaction has created a community of retail investors that influences investment decisions and broader market dynamics.
Focus on sustainable and socially responsible investment.
New retail investors could play an essential role in promoting sustainable and responsible business practices in the future. The FTI Consulting study also shows that new retail investors feel inclined towards sustainable and socially responsible investing. When making investment decisions, these investors often consider environmental, social, and governance (ESG) factors, indicating a preference for companies committed to social and ecological well-being.
These investors are more interested in sustainability and social responsibility issues, so that they may demand greater transparency from their firms. This information could change how companies communicate with their shareholders and address ESG issues, leading to a general change in the direction and approach of companies.
Influencer marketing effectively captures retail investors' attention and promotes financial products and services. Choosing the right financial influencers for marketing is critical, and those with investment expertise and experience should be selected. Financial influencers with a broad fan base can increase visibility and generate interest in financial products and services authentically and effectively. Influencers can provide engaging educational content that helps retail investors make informed and responsible decisions. And in the process, help brands enhance their reputation and consolidate their position as industry leaders by building solid and long-lasting relationships with influencers and their audience.
This reality is that influencer marketing is an excellent way for companies to drive awareness and increase investor confidence, and ultimately encourage more investment in their products and services. This results in an effective marketing strategy, which generates a higher return on investment (ROI) and allows companies to connect with their target audience authentically and successfully.
Xemoto Media specializes in influencer marketing for industries that are highly regulated. Its network of financial influencers has the expertise to navigate the investor communications space. Get your company before the new retail investor by leveraging Xemoto Media's influencer marketing solution.