Understanding The Pandemic Stock Trading Boom: Survey Profiles New Generation Of Investors

Analysts estimate more than 10 million new individual investors opened trading accounts in 2020 thanks to a perfect storm of circumstances.

Americans were stock at home due to social distancing with nothing to spend their cash on and few other forms of entertainment. Several rounds of stimulus checks gave many Americans extra cash, and stock trading became a trendy hobby on social media.

A new survey by Personal Capital profiled first-time investors, including their strategies, knowledge and behaviors. Personal Capital surveyed 800 new retail traders along with 200 seasoned investors to paint a picture of the new generation of pandemic investors.

The Numbers: Personal Capital found 52.9% of first-time investors are men and 47% are women. The average age of these first-time investors is 33.3 years, with nearly half (47%) reportedly under the age of 31.

Nearly three-fourths (74.2%) of new investors had an associates degree or higher, while 25.9% reported no college degree.

Personal Capital found investors aged 25 to 30 have been most aggressive with their investing, devoting 26.2% of their income on average to the market. The wealthier first-time investors were also the most aggressive, with Americans earning at least $75,000 per year putting more than 35% of their income into the market. Personal Capital reported the average first-time investor devoted 23.4% of his or her monthly income to the market.

Unfortunately, first-time investors reported a relatively low understanding of major asset classes. Of those surveyed, 74.2% reported an understanding of the stock market. Only 42.7% reportedly understand cryptocurrencies, 36.9% understand bonds and 33.6% understand index funds.

Despite the rise of social media, particularly among younger traders, first-time investors reportedly still prefer financial news websites (56.8%) over YouTube (44%) or a specific investment platform (39.5%) as a source of investment knowledge.

However, 71.3% of first-time traders said they follow at least one financial influencer or pundit, and market newbies under the age of 30 were more likely to rely on Reddit and YouTube for investment knowledge than older investors.

Related Link: 477 Days And Counting: How The Current Post-Pandemic Bull Market Compares To Bull Markets Of The Past

Rookie Mistakes? Only 1.6% of first-time investors said they use a financial advisor, but 52.8% said they plan to use one at some point in the future. Among the 200 seasoned investors surveyed, 48.6% reportedly use a financial advisor.

The stock market was by far the most popular asset class among these new investors. Among those surveyed, 74% said they invested in stocks, reporting an average annual contribution of $2,494. Cryptocurrencies were the second most popular investment option, with 45.5% of new investors dipping their toes in and contributing an average annual investment of $2,036. Bonds (39.6%) and index funds (33.6%) were the next most popular options.

Many first-time investors have had great early success, but it’s very easy to make money in the market when the SPDR S&P 500 ETF Trust SPY is up nearly 100% from its pandemic lows in less than 16 months. Personal Capital found seasoned investors feel seeking fast profits (55.6%), investing without adequate research (52.2%) and committing a lot of money at once (49.3%) are the three most common newbie investing mistakes.

Benzinga’s Take: The popularity of meme stocks and cryptocurrencies such as GameStop Corp. GME, AMC Entertainment Holdings Inc AMC and Dogecoin DOGE/USD has left many experienced investors to question the new generation of stock traders.

Regardless of how these meme trades play out in the next year or two, learning about investing at a relatively young age is an excellent way to set yourself up for long-term financial success in the future.