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Modern Money: New Investing in 2020


By Former MoneyWise Staffer, Kelly Griese

Wednesday, February 17, 2021

Recently, we read a fascinating study from the Financial Industry Regulatory Authority (FINRA) about the investing habits of young people and how those habits compare to older, more established investors. The full study is linked below, and we encourage you to read it. But for those who want an overview of the results, you’re in luck! We convinced the folks at FINRA to write a guest blog post for MoneyWise Matters.

Investing 2020: New Accounts and The People Who Opened them

During 2020, the COVID-19 pandemic and associated market and income volatility dramatically altered the financial well-being of many U.S. households. Nevertheless, a surge of new retail investors flocked to the market, opening taxable investment accounts. So, who are these newcomers? Media coverage can be filled with speculation about the characteristics and habits of new investors.

To cut through the opinions, the FINRA Foundation partnered with NORC at the University of Chicago on a rigorous research study to get some real answers.

The study grouped investors into one of the following categories:

  1. New Investors who opened taxable investment account(s) in 2020 but had not previously done so
  2. Experienced Entrants who opened new investment account(s) in 2020
  3. Holdover Account Owners who kept their existing account(s) opened before 2020 but did not open any new ones.

Who are the New Investors?

They are young. New Investors were younger than experienced investors. Nearly two-thirds were under age 45. The plurality of both New Investors and Experienced Entrants were between 30 and 44 years old. In comparison, the largest portion of Holdover Account Owners were over 60 years old.

They are racially and ethnically diverse. While most investors (of any investment group) were white, New Investors were more diverse. New Investors had the highest proportion of African American investors. There were more Hispanic/Latino investors in both the New Investors and Experienced Entrants segments. Holdover Account Owners had the smallest proportion of African American or Hispanic/Latino respondents.

Their incomes are not high, and their account balances reflect it. New Investors earned less income than their more experienced counterparts. While across all investors the plurality earned $100,000 or more annually, only 28 percent of New Investors earned that amount. In addition, almost a quarter of New Investors earned less than $35,000 annually. In comparison, only 7 percent of Holdover Account Owners and 16 percent of Experienced Entrants reported earning less than $35,000 annually. New Investors also generally held much smaller account balances. Thirty-three percent of New Investors held account balances of less than $500, while only 16 percent of Experienced Entrants and 6 percent of Holdover Account Owners held account balances of this amount. Nearly half (46 percent) of Holdover Account Holders had account balances exceeding $25,000.

Why did they open an account?

It’s fun. Overall, most investors reported that they liked investing. Sixty-one percent of New Investors agreed with the statement “I enjoy investing” as did 72 percent of Experienced Entrants. Holdovers were least likely to report that they enjoyed investing, with 54 percent at least somewhat agreeing with the statement.

But really…why? When asked to report on what prompted them to open a new investment account, New Investors reported being motivated by the ability to invest a small amount of money and the dips in the market that made stocks cheaper to buy. Experienced Entrants had similar top reasons, though they differed slightly. Investing for a goal other than retirement, and the ability to invest small amounts made up some of the top reasons for Experienced Entrants. Despite our focus on investing in taxable accounts, those who opened accounts in 2020 most frequently cited saving for retirement as a top reason.

There were also some key differences in investors’ goals by race and ethnicity. Among white and Asian investors, the most cited reason for opening a new investment account in 2020 was saving for retirement, but among African American and Hispanic/Latino investors, the top reason was the ability to invest with small amounts of money.

They have investment goals. The future goals of investors aligned somewhat with why they opened an account in the first place. Across all investors, the most common goal that was cited for their taxable investment was “saving for retirement.” For New Investors, the second-most common goal was learning about investing, while for Experienced Entrants it was speculating, or making fast profits, to build wealth. For Holdover Account Owners, the second-most frequently cited goal was saving for an upcoming expense other than retirement.

They don’t report taking high risks. While there is media coverage suggesting that New Investors are prone to taking high risks, our findings indicated that New Investors (like the other segments) were most likely to report taking average financial risks, expecting average returns. Forty percent of New Investors reported a willingness to take substantial or above-average financial risks (expecting returns that were substantial or above-average), which is lower than that reported by Experienced Entrants or Holdover Account Owners, but still sizeable.

What are their investment habits?

They trade more frequently. Investors who opened accounts in 2020 traded more frequently than Holdover Account Owners. Sixty-one percent of New Investors and 62 percent of Experienced Entrants reported at least one trade per month.

They mostly trade individual company stocks. Roughly two-thirds of both New Investors and Experienced Entrants reported trading individual company stocks, the most frequently traded type of investment. Stocks were followed by mutual funds and exchange-traded funds (ETFs), but at much lower levels. Only about one-third of New Investors and Experienced Entrants reported trading these funds. New Investors’ high use of company stocks suggests a disconnect between the risk they reported being willing to take and the amount of risk they are actually taking. Individual company stocks can carry a high level of risk, typically more so than a well-diversified mutual fund, for example.

Many are unclear about what their accounts offer. Most New Investors (and Experienced Entrants) reported that their account offered commission-free trades, but over one-third of New Investors and nearly a quarter of Experienced Entrants reported not knowing whether they were paying commission on trades. Similarly, most New Investors and a plurality of Experienced Entrants did not know whether their account allowed them to make purchases on margin. Of those reporting a margin account, only about one-quarter reported actually using margin to purchase investments. While they were more certain about whether they had traded options, only 16 percent of New Investors and 29 percent of Experienced Entrants reported ever having done so.

They access their accounts online. An overwhelming majority of investors used the internet to access their accounts. Nearly half of New Investors reported accessing their accounts primarily via mobile app, while three-quarters of Holdover Account Owners reported accessing their account primarily through a computer. Experienced Entrants were more divided, with 40 percent accessing via mobile app and 54 percent accessing primarily through a website.

They seek advice from people who aren’t financial professionals. While nearly half of Holdover Account Owners relied on information from financial professionals for making investment decisions, only 23 percent of New Investors and 39 percent of Experienced Entrants did so. Instead, New Investors tended to seek information from friends, colleagues, and other family members (38 percent), while Experienced Entrants often reported they preferred doing “other personal research” (42 percent). Both New Investors and Experienced Entrants reported seeking information from the company in which they planned to invest (37 and 42 percent, respectively). Regulators were the least often used information source across the three investor segments.

How much (little) do they know about investing?

Many don’t know a lot. The objective investment knowledge of new investors, measured through a 5-question quiz, was very low. On average, New Investors could answer only 1.4 out of five questions correctly. In comparison, Experienced Entrants were able to correctly answer 2.3 out of five, and Holdover Account Owners 1.8 out of five.

But they don’t seem to realize it. When asked to assess their overall investment knowledge, New Investors reported considerably high levels of confidence relative to their objective knowledge. Sixty-two percent of New Investors reported a level of investment knowledge that was average or higher. However, they were not alone in their overconfidence, 84 percent of Experienced Entrants and 74 percent of Holdover Account Owners reported the same.


Consistent with narratives about new market entrants, we found that New Investors were younger, more racially/ethnically diverse, and earned lower incomes than those more experienced. They generally had lower investment account balances than Experienced Entrants or Holdover Account Owners.

Investors frequently cited saving for retirement as a goal for their taxable investment. New Investors and Experienced Entrants both reported being primarily driven to open an account by this desire. It is unclear why they opted to use taxable investment accounts to do so, since there are vehicles specifically designed to save for retirement that offer tax-advantaged saving. While we can only guess as to why, it is possible that among other factors, the ease of opening an investment account and a lack of knowledge about the tax implications may explain why investors chose taxable investments to save for retirement.

Investors differed in how they made trading decisions. Holdover Account Owners more frequently cited relying on financial professionals relative to other sources of information, while New Investors sought the advice of friends and family, and Experienced Entrants did their own personal research.

A large portion of investors were unaware about important account features and had little knowledge about investing, particularly New Investors. Many reported not knowing whether their account charged commissions on trades or whether the account allowed purchasing on margin. New Investors also had very low levels of objective investment knowledge but were overconfident in their investing ability. However, many New Investors reported opening their accounts to learn about investing, so perhaps many are on a path to higher levels of investment knowledge.

Opportunities to enter the market with smaller amounts of money have eliminated certain barriers and have led to a new wave of investors with different profiles, desires, and a distinct set of needs.

Blog topics:  Archive, Investing