The retail investment scene is booming.
As part of our mission to get everyone investing, in April 2021 we surveyed our app users to allow us to paint a more accurate image of the UK retail investor.
Below you can see the responses we analysed from 2,092 Freetrade active users, looking at demographic data and their behaviour to better understand what drives them to invest, their goals and investment habits.
When you invest, your capital is at risk.
2020 might have been the year a lot of investors came to the market for the first time but with the excitement that drove many to invest came a lot of risky behaviour and often unrealistic expectations.
The danger is that the pace of market movements last year might have drawn in investors before they had the chance to educate themselves on good investing habits. That has the potential to leave a lot of retail investors vulnerable to emotional decision-making, devoid of fundamental analysis.
Trading in and out of ‘hot’ stocks and judging companies by their charts or social media sentiment rather than their balance sheets have the potential to hurt retail investors.
We’ve certainly seen emotions and hype fuel investments on both sides of the Atlantic and we wanted to see just what has been the driving forces behind Freetrade users’ decisions to invest, how realistic their expectations are, and how they’re planning to get there.
Away from the big institutional money managers, retail investors aren’t professionals and tend to use company stocks, ETFs, investment trusts and other funds to try to hit their own personal financial goals.
In general, a retail investor is an individual or non-professional investor and invests through a brokerage firm or a bank.
Empowering retail investors to take control of their own money lies at the heart of Freetrade’s core mission. Part and parcel of this is allowing investors to open a brokerage account in minutes, start investing with only £2 and removing trading commission and offering a low, transparent charging structure.
13.5% of UK shares are owned by individuals, according to Finder (institutions like asset managers, pension funds and investment firms own the rest). The firm’s survey results show 33% of Brits now own shares and 2020 isn’t just a flash in the pan.
75% of Gen Z participants and 74% in the Millennial category intend to invest after the pandemic is over.
In the US, households own 34% of the equity market according to Nasdaq. That figure rises to 77% if we include mutual and pension funds as well as stocks.
Retail investors use their own money to invest and do it through online investment platforms or brokers.
They typically have less money to invest that big institutions and often invest less frequently.
Because investment houses can place higher value trades, and more often, their fees can be lower, relative to what retail investors have to pay.
Retail investors don’t have to deal with a lot of the reporting requirements and restrictions big institutions have to navigate.
The likes of pension funds, mutual funds, hedge funds, insurance companies and commercial banks pool other investors’ money and invest it on their behalf.
They often make the largest trades on the market, big enough to shift share prices in some cases.
Because of the size and regularity of their trades, institutional investors qualify for lower fees and preferential treatment.
They usually make sure they have access to much more data and information than the average investor to help them make decisions.
61.47% of the surveyed users are under 35 years old, 21.92% being between 18 and 25 years old.
Almost a quarter of the respondents are female investors (23.14%). From these women, over 55.72% are millennials and identify as ‘first-time investors’.
This shows a shift in behaviour towards investing among women, with an incredible increase from the 10.5% registered in the 2019 survey.
45.29% of respondents are owners of their property, while 9.06% live in a flatshare, either rented or owned.
Most respondents, 53.38%, live with their partner or spouse, while 14.61% live independently.
67.16% don’t have any dependents, while 26.82% have either one or two dependents.
58.97% of respondents are first-time investors and have joined Freetrade to kick off their investing journey.
Just 5.39% consider themselves highly experienced investors.
We’ve seen a slight increase in the number of first-time investors since our survey in January 2021, in which 54.2% of those who took part identified as first-time investors vs 45.8% labelling themselves experienced investors.
We have also noticed more women starting their journey towards financial independence (from 23.9% first time female investors in January 2021 to 27.43% now), which is encouraging and should start narrowing the investment gender gap partially caused by the inequalities in pay between men and women.
With such a large number of people starting out, brokers have a real opportunity to support their users and guide them to make smarter, better-informed decisions through educational content (for example our, How to invest in stocks - beginner’s guide) and transparent practices.
“There is a mountain of new investors desperately looking for guidance on how to make the best decisions they can for their financial future.
That’s why we’re committed to supporting them with regular takes on the market and educational articles, so they aren’t just left to fend for themselves. I think we all just want to know we’re doing the best we can with what we have.
Stripping out the jargon and making those decisions a bit more accessible is the main goal of everything we produce on the Freetrade Invest Hub and in our Honey daily newsletter.”
Before they started, a lot of those surveyed said they felt nervous and highlighted the uncertainty of it all. Only 1,240 respondents said they felt excited by the prospect of investing.
A third (32.22%) of the cohort said they lacked confidence and are holding between £1000 and £10,000 in their portfolios.
37.89% of the respondents are slowly building their confidence by investing small amounts. Their portfolio values are under £1,000.
But it’s not just first-timers feeling the nerves. 33.69% of the more experienced participants (282 out of 837) mentioned they felt either reluctant or uncertain when they started investing.
Once they started investing, most of those surveyed expressed confidence and interest in investing, with 4.12% mentioning they feel powerless.
Against the grain of the popular narrative around investors over the past year, we see retail investors being quite cautious with their decisions, with only 14.51% of our respondents considering themselves impulsive.
Long-term financial stability was front of mind among our survey respondents, with ‘I wanted peace of mind knowing I was building my savings’ the top reason for 44.56% of the group.
Less reasoned prompts like ‘I was bored during lockdown’ or ‘I saw lots of ads online’ come in bottom of the reasons given for starting out.
In line with what we found following the Financial Literacy survey we ran at the beginning of 2021, over a quarter of our respondents have started their journey through recommendations from friends and family.
Retail investors have a wide range of goals regarding investing, from paying for a big holiday to supporting their family members short/ long term.
The most popular drives to invest are:
More disposable income to support lifestyle - 48.73% from all answers
Just for fun/no concrete goals - 36.42% (however, for half of the respondents, this wasn’t the sole reason to invest)
Buy a property - 34.22% from all answers
To help raise a family in future - 24.41% from all answers
Support family members in short/medium term - 15.93% from all answers
When it comes to researching what to invest in, 46.03% of UK retail investors spend a couple of days informing themselves, and 22.01% take even more than one week to make a decision.
Everyone tends to use a mix of channels and mediums to get their information; however, Google Search comes up in 78.48% of responses. Financial media comes in second, with 48.19% of respondents using it to educate themselves, followed by Twitter/Reddit/TikTok with 40.25%.
Friends, colleagues, and family also influence retail investors’ decisions, with 32.11% of answers, including them as a source of advice.
More information doesn't always prompt better decisions though. The wide spectrum of online content, and difference in quality of investment guidance, has never been greater.
Getting caught up in social media content designed to entice you into trading can end up doing serious damage to your long-term financial health. Do your best to distinguish between sources of high quality investment content, and material built on hype.
No investment guidance should tell you exactly what to invest in because the provider couldn't possibly know everything about your time horizon, risk tolerance and financial goals. Stick to reputable sources that focus on building good investment habits and behaviours with a view to helping you become a better investor.
"A sigh of relief in all of this is that young people are taking their future into their own hands and being proactive in addressing the gap in their financial knowledge.
Social media can make the headlines for the strangest of reasons but dismissing these platforms means ignoring the truly valuable educational content young people are finding on them.
These are free resources and guidance tools dealing with money matters in a way that engages and informs a generation who left school without a firm financial foundation. Those who diminish the efficacy of these resources have to ask themselves, “What else is on offer to help?"."
Shares in individual companies (94.90%), ETFs (49.90%) and Crypto (44.51%) are the most popular investment assets retail investors put their money in, with a very small percentage of those that answered turning to more speculative investments such as derivatives (3.58%).
For a breakdown of the exact instruments retail investors favour, head to our ‘Most traded shares’ page to see which were the most traded stocks and ETFs over the last week.
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