During the week of May 13-17, shares of GameStop, AMC, BlackBerry and other companies soared and then plummeted, all thanks to Keith Gill, known online as Roaring Kitty. The financial influencer who was at the center of the 2021 memestock frenzy posted on X (formerly known as Twitter) for the first time in years. The online community r/wallstreetbets via Reddit became active again, with people posting their gains (and subsequent losses). Within 48 hours of Roaring Kitty’s tweet, GameStop trading volume was significantly higher average.
Despite its impact on certain areas of the market, this type of investing represents only a small portion of all retail investors. Actuallyonly about 14% of retail investors invest because they want to beat the market.
Fortunately, many more retail investors are most motivated by goals of saving for retirement, future generations, emergency funds, or significant investments such as education or buying a home. For example, 48% of retail investors invest with the goal of saving enough money for retirement, and 43% invest to create wealth for themselves and their descendants.
For retail investors, it is understandable that determining the right strategy to achieve these goals can be a difficult task. An influx of information from social media, peersand financial services may add even more noise.
A much needed revolution
Today, policymakers and financial institutions have a significant opportunity to step up their game and better support retail investors.
A revolution in financial education is needed around the world. Research Global Center for Financial Literacyr shows that less than half of adults in the United States are financially literate, and the level of financial literacy among Generation Z is even lower—it’s too low.
ABOUTonly 48% of investors use financial adviceR. Professional and institutional investors (i.e. the very hedge funds that the meme stock movement considers the enemy) have access to more knowledge and information than retail investors. Despite the growth of financial education, information asymmetries persist and individual investors have limited access to financial resources. sophisticated instruments, detailed market data and large pools of capital that institutional and professional investors have.
Bye 65% retail investors interested in more detailed consultation, high cost and availability fears keep many from looking for financial advisory services.
This barrier has some potential solutions. Financial education should be viewed as a lifelong journey. it needs to be embedded in education systems and workplaces around the world. New innovations in financial advice, including artificial intelligence advisors and other technology-enhanced advisory services, offer tailored advice tailored to individual financial constraints and goals.
Understanding the Retail Investor Class
Data shows that retail investors may experience lower yield through individual stock selection and, in some cases, selection of riskier or less liquid assets for example, options.
Increased data on retail investor preferences and behavior can help institutions and policymakers guide investors to create diversified portfolios that match their risk tolerance and long-term financial goals. A better understanding of the retail investor cohort can lead to improved products, information sharing, and policies that are tailored to the current behavior and vulnerabilities of retail investors.
Policymakers and financial institutions must balance expanding access to financial markets with protecting investors. This involves increasing transparency about the risks and costs associated with investing, and ensuring that investors are fully informed before making decisions. This could look like improved behavioral incentives that encourage investors to make smarter choices and greater availability of financial advice. These measures aim to create a fairer and safer financial environment, while encouraging responsible participation in markets.
Policymakers and the financial industry can empower individual investors by improving access to capital markets, increasing access to financial education and advice, and reducing cost barriers. Coupled with this, these groups need time to understand the retail investor cohort and create products and policies that best suit their needs.
Meaghan Andrews is Head of Capital Markets and Responsible Investment at the World Economic Forum. Hallie Spear. Hallie Spear is a WEF specialist on capital markets and sustainability initiatives.
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