The brokerage industry saw historic growth and engagement among retail investors in 2020 and into 2021. Individual investors opened more than 10 million new brokerage accounts in 2020, according to JMP Securities estimates.
At Schwab, we've added more than 1 million new brokerage accounts for three consecutive quarters, and as we've seen across the industry, a vast majority of those new clients are millennial or even younger.
Some industry pundits have described these new investors as uniformed, shortsighted risk takers, suggesting that things will end badly for them compared to more experienced investors.
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We could not disagree more.
Schwab recently surveyed this group of new investors – a group we're calling Generation Investor, or Gen I – and found that the majority of new investors are far more serious and sophisticated than they get credit for. If the financial services industry is going to serve these new investors and give them the support they need, we first need to cut through the noise and misconceptions.
Here are three myths that need busting:
3 Myths Around New Investors
Myth 1: They only want to invest using an app.
Having an easy-to-use platform and mobile app are table stakes among all investors, and particularly new and younger investors. At the same time, access to human financial professionals is critical to Gen I when it comes to other aspects of money management. Over half of those surveyed feel that professionals outshine technology when to comes to giving financial advice (64%) and understanding their entire financial situation (63%).
That's why we need to leverage and combine both the best of people and technology to offer engaging, efficient digital experiences and personalized service from a person – not one or the other. In fact, investor satisfaction doubles when both digital and human interactions are combined, according to the 2020 J.D. Power Full-Service Investor Satisfaction Survey.
If we don't meet this new wave of investors with great experiences wherever they are, while we have their attention, we risk missing out on an incredible opportunity to keep them engaged over the long term.
Myth 2: They're too focused on the short term and don't think about risk.
It is true Gen I is more interested in riskier investments such as cryptocurrencies than other investors, but that is not new. Given their average age and time horizon, taking on more risk often makes sense.
Moreover, over half of first-time investors in Schwab's survey say they understand how much risk they can handle from both a financial and emotional perspective. To counterbalance some of their more volatile investments, they say the hold more stable asset classes like bonds and other fixed-income investments, as well as some cash as part of their overall portfolios. And nearly three-quarters say they either rebalance annually or have an account that automatically rebalances.
One of the most compelling findings from our survey showed that 72% of first-time investors expect to buy and hold for the long term, and in fact see investing as a way to build wealth over time.
Myth 3: They get all their investing ideas from social media platforms and online forums.
It's true that some in Gen I have been drawn into the market by volatile meme stocks that caught fire on platforms such as Reddit and TikTok. But in a recent survey of Schwab clients, while almost half of those under age 40 traded meme stocks in recent months, the interest to continue is low: Only 8% are extremely interested in trading meme stocks in the next year.
The increase in attention to social media and online forums for investing guidance is more indicative of Gen I's ferocious appetite for education and insights than anything else. In fact, Schwab's survey showed that 94% of new investors want information and tools to do their own investing research, and 90% want educational content to improve their investing skills.
So rather than being fixated on making investing playful and entertaining, our industry should be focused on simplifying the investing experience and arming new investors with straightforward educational tools, resources and insights to help them develop the knowledge and skills to be financially confident, lifelong savers and investors.
The Industry's Job Is Never Done
As we think about this new generation of investors, I can't help but to reflect back on some of my early investing experiences during the internet boom of the late 1990s, and how far the industry has come in breaking down barriers since those days. You can now invest with no account minimums, pay zero commissions, buy fractional shares, invest in robo-portfolios and so much more.
It has been great to see Generation I take advantage of all those innovations, but accessibility and democratization aren't enough. As an industry, we must continue to innovate and give new investors the resources, insights, tools and live human support they are asking for to help them succeed over the long term.
Jonathan Craig is Managing Director, Head of Investor Services at Charles Schwab. Any opinions expressed in this article are those of the author and do not necessarily represent the opinions of Kiplinger. The information provided herein is for informational and educational purposes only and is not meant to be a solicitation for a specific security or service.
Any opinions expressed in this article are those of the author and do not necessarily represent the opinions of Kiplinger. The information provided herein is for informational and educational purposes only and is not meant to be a solicitation for a specific security or service.
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