Commission free brokerages have made it easy for retail investors to participate in the stock market, however, they are still facing challenges. A survey of 100 active investors found that lack of time to research stocks, insufficient funds, and limited knowledge are the top reasons preventing them from investing more frequently. These challenges represent the last mile of retail investing, a critical hurdle that keeps many people from participating in the market.
The Evolution of Retail Investing
Commission Free Trading: Robinhood revolutionized investing for Millennials and Gen Z by offering commission-free trades and a user-friendly platform, breaking traditional barriers such as high fees and minimum requirements, allowing even novice investors to participate in the market.
Diversification: Exchange-traded funds (ETFs) have gained popularity as investors seek more efficient and diversified ways to invest in the stock market. The number of ETFs worldwide grew from 276 in 2003 to 8,754 in 2022.
Lower management fees: Robo-advisors offer low-cost professional-level investment management services, making it more affordable for investors compared to traditional human advisors.
Social investing: There has been a rise in social/meme investing, with individual investors using social media to discuss and promote certain stocks or investment ideas, leading to the creation of new investing subcultures and impacting the value of certain stocks.
Pandemic Spurs 10 Million New Retail Investors
A survey by Charles Schwab found that a large portion of retail investors began investing during the COVID-19 pandemic. The survey revealed that 15% of new investors started investing in 2020, with 45% of them being millennials. The pandemic-induced market volatility, along with stimulus checks and increased time spent at home, encouraged many to enter the stock market. These new investors tend to be more engaged and trade more frequently than experienced investors, but they may also lack knowledge and experience.
The Next Big Wave
A substantial transfer of wealth is expected in the next decade as baby boomers pass their wealth to heirs, with estimates suggesting the total amount of wealth to be transferred could reach 84 trillion in 10 years. According to a study, 75% of heirs plan to change their financial advisors the same day they receive their inheritance, citing a lack of connection and trust with the previous advisor as the main reasons.
How to Attract Investors and Capture Trillions of Dollars in Wealth Transfer?
Granting investors the option to select a theme, such as “renewables,” rather than individual stocks like Tesla, and allowing them to invest in dollar amounts using dollar-cost averaging can empower investors to exercise greater control over their investments without the need for extensive research or a significant upfront investment.
Companies to Keep an Eye On
Public.com is a social investing app that aims to make the stock market more accessible and collaborative for all, and with their new feature, Investment Plans, users can create baskets of stocks and set up recurring contributions.
Alinea is an investment platform that allows users to pick a premade basket, known as “playlist,” fostering a social and collaborative investing experience.
Share Invest is a mobile and web app that empowers investors to pick premade themed baskets of stocks, known as “Strategies,” and offers the option to set up recurring contributions as low as $5 per week, providing added peace of mind as an SEC registered investment advisor.
