One impact of the Covid-19 pandemic on the investment arena has been an influx of new retail investors. This is partly due to people saving more as a result of lockdowns restricting their spending and giving them funds to begin their share dealing journey.
Now, a new survey has been conducted to learn more about these first-time investors, including their investment strategies, where they get investing advice from and how many of them plan to return to the market in 2022.
Here’s a breakdown of the survey’s findings.
What are the main characteristics of first-time investors?
The survey conducted by uk.investing.com found that first-time investors have unique characteristics as well as investment approaches and influences that significantly set them apart from their much more experienced counterparts.
For example, the majority of first-time investors are relatively young. Almost three-quarters (74%) of new investors are from Generations X, Y, and Z, compared to 49% of experienced investors.
The survey also found that these investors earn less personal income (only 3% earn above £100,000 compared to 27% of more experienced investors). First-time investors are also more likely to be female than male (31% versus 15%).
What else did the research show?
The survey also found that first-timers are twice as likely (48%) as other investors (22%) to use social media platforms such as Reddit to inform their investing decisions. They are also less likely than their more experienced peers to seek help from a financial advisor (11% to 31%).
Another major finding was that first-time investors are usually more willing to take risks. For example, 58% were found to have crypto in their portfolio compared to 35% of experienced investors. New investors are also more likely to invest in meme stocks like GameStop and AMC Entertainment. Furthermore, more first-time investors (39%) report trading for short-term gains than other investors (22%).
When it comes to investment returns, a smaller number (62%) of first-time investors reported profits from their investments in 2021 than experienced investors (80%).
Interestingly, however, the research shows that first-time investors are more optimistic about the future of the markets (86%) than veteran investors (81%). This could be precisely why 90% of those who made their first investment in 2021 intend to do so again in 2022 according to the study.
Where can first-time investors improve?
From the study’s findings, there are certainly a couple of areas where last year’s new investors can do better.
For example, rather than trying to chase short-term gains, more first-time investors should focus on the long term. Long-term investing has historically proven to be a far more rewarding strategy than short-term trading.
In the short term, the market can go up and down. Investments can fluctuate in value during this time. Over the long term, however, the market has an upward bias. A good rule of thumb is to stay invested for at least five years. This is usually more than enough time to ride out the market’s ups and downs and grow your money.
Another area where there is room for improvement is in the sources of investment information and advice. As the survey revealed, a significant number of first-time investors use social media to inform their investment decisions.
Unfortunately, social media is not always the best place to get investment advice. Many of the people offering investment advice on social media have no significant experience or training in investing. Some of these people may even have ulterior motives.
A much better bet than relying on social media for investment advice is to do your own research using trusted and reputable tools and sites. The Motley Fool is a good place to start. If you need more help or guidance, you could also talk to a qualified financial advisor.
How can you start investing?
While investing is inherently risky, it is still one of the most reliable ways to build wealth, especially over the long term. If you are yet to begin investing, it’s never too late to do it.
The good news is that investing is no longer a complicated affair.
One of the easiest and perhaps the cheapest ways to do it is online through a share dealing account. It’s an account that allows you to buy a wide range of investments, including the individual shares of publicly traded companies, exchange-traded funds (ETFs) and investment trusts.
If you are ready to take the plunge, we have reviewed and ranked some of the top-rated trading platforms for beginners to help you narrow down your options and find one that is a good fit for your needs and circumstances.
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About the author
Sean is a personal finance writer with a strong passion for helping others become more financially literate and make better financial decisions. He covers everything from credit cards to savings to investing.
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