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This article written by Emily Sherman, journalist and contributing writer for Stacker Media, explains 6 ways investing has changed over the last decade, which you may find of interest. Sponsored by TD.
6 ways the face of investing has changed over the last decade.
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Written by Emily Sherman, journalist and contributing writer for Stacker Media.
When you think of investing in the stock market, you might immediately think of high-powered bankers in the financial district. But in reality, millions of North Americans take advantage of the potential earnings that could be gained by investing their money in the stock market.
In 2021, about 1 in 3 Canadians had invested in the stock market shares, according to a 2022 Finder report. Likely, these numbers will continue to grow, as broader groups of people begin to invest their savings. A 2023 study from FINRA and the CFA Institute found that Canada has the highest rate of Gen Z investors, with nearly 74% reporting that they have at least one type of investment. New products as well as services focused on helping consumers learn how to invest responsibly, are helping to make investing more accessible than ever before, while trends in industries attract new interest in investing. But amid this shift, there are also newly available—and less traditional—strategies.
Looking at survey data from financial institutions, FINRA (Financial Industry Regulatory Authority), a private American corporation that regulates U.S. securities, and statistics from Canadian and U.S. government sources, here is how investors have changed compared to 10 years ago.
The racial gap in stock market participation is narrowing
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In Canada, about 31% of white Canadians reported investment income in 2015, compared to only about 25% of nonwhite Canadians. In the U.S., Black and Latino households have historically been less active in the stock market, with only about a quarter of adults in these communities owning a taxable investment account of any kind, according to a 2021 FINRA Foundation study.
But in the last few years, the racial and ethnic gap among investors is narrowing. According to Charles Schwab, 58% of Black U.S. households and 63% of white households were investing in 2022, narrowing the gap to only 5 percentage points. In 2015, the gap between white and Black participating was 18 percentage points. The same study attributes this to younger Black Americans participating in stock market investing, as it found a higher participation rate among those aged 40 and younger.
Investing gets gamified
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New products, services, and apps have made investing more accessible and interesting to young people than before, and it also appears that they turn transactions with real money into something that seems like a game, as reported by Bloomberg in 2020. These new offerings allow almost anyone to become an investor from their phone in minutes.
Canadian research from the Ontario Securities Commission in 2022 shows "participants who were rewarded with points for buying and selling stocks made 39% more trades than the control group." While it's promising to see more young people participating in investing, a higher trading volume could be indicative of encouraging risky strategies of buying and selling quickly instead of learning to assess the level of risk they can afford, as reported by Wall Street Journal in 2020. Not all investment apps offer nonstock products like bonds or mutual funds, which can make it more difficult for the investor to diversify, a strategy often used manage market risk.
New retail investors skewed younger and lower income, according to some experts
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Retail investors, another term for nonprofessionals who invest their own money, are a bigger market factor than ever. A 2021 Charles Schwab study found that 15% of all current stock market investors in the U.S. didn’t start investing until 2020.
According to a FINRA study, "new investors during 2020 tended to be younger, earned lower incomes, and were more racially/ethnically diverse" than more experienced participating investors or people who already held accounts.
And these new investors are behaving in new ways. In the past couple of years, for example, there was the GameStop phenomenon, in which a group of primarily young retail investors active on Reddit bought large amounts of GameStop shares in a short time. They inflated the value of this stock much higher than professionals said the company was worth.
These so-called GameStop "meme stocks'' introduced a new demographic of investors to the market and the potential gains to be earned from it.
Younger investors are going to social media for advice (for better or worse)
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As more young investors are entering the market, they are seeking out advice and education from the platforms they know best— often that is social media. The World Economic Forum found that new, young retail investors prefer to get their information from their friends, family, and social sites, rather than sources like regulatory filings and financial journalism sites.
While there are some successes from this strategy, it may be an incredibly risky way to get financial advice. The U.S. Securities and Exchange Commission advised investors in 2022 to be careful of making decisions based on social media, as the platforms could be rife with scams.
Financial literacy has room to improve in U.S. and Canada
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Whether from a reliance on social media for financial advice or simply the young age of today's new investors, there has been a decline in financial literacy in the U.S over the last 10 years. This is especially true among women, Black Americans, and younger investors, according to 2022 FINRA data.
In Canada, however, financial literacy may be increasing. A 2021 study from the Responsible Investment Association showed that about 69% of respondents said they had little knowledge of responsible investing, down from 75% the year prior.
Twice as many Canadians—and more Americans—started saving for retirement in the last decade compared with the one prior
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Canada has seen a boom in retirement savings, with twice as many Canadians starting to save in the last decade than the one prior, according to a 2018 Ontario Securities Commission study.
The study also found that, 36% of Canadians who are saving for retirement do so through their employer's pension plans. A further 34% do so by investing lump sums whenever they can, and another 34% by investing a regular amount per paycheck. This could look well for the future financial stability of Canadians, but the study found that there are still demographic splits, with women less likely than men to have started preparing for retirement.
Things are looking up in the U.S. as well, as 75% of respondents to a Federal Reserve 2021 survey reported that they had retirement savings. However, only about a third of non-retirees thought they were on the right track for retirement saving goals, indicating that access to financial planning tools and educational resources is a continuing need for both would-be and current investors.
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