A large chunk of the retail investing crowd got their start during the pandemic, Schwab survey shows

• Fifteen percent of current retail investors first began investing in 2020, a new Charles Schwab survey showed.
• Schwab is dubbing the investors that jumped into the market for the first time in 2020 "Generation Investor."
• Newbie investors' appetite for short-term profits is going down. While 44% of Generation I was trading for the short-term in 2020, only 28% said they would do that again in 2021.

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• SCHW

The pandemic spurred a flood of new retail investors into the stock market and a survey from Charles Schwab attempts to estimate the size of this this new generation of traders.

The broker found that 15% of current retail investors first began playing the market in 2020, based on analysis of about 500 investors. Schwab — which now hosts 31.5 million retail clients and $6.9 trillion in assets because of the retail investing boom — is calling the new wave of investors, "Generation Investor."

"A big part of this growth is Generation Investor – the large number of people who are bound together not by their birth years but by when they got started in their investing journey – who are now on a path to ownership and reaching their financial goals," said Jonathan Craig, Charles Schwab senior executive vice president and head of investor services.

The firm surveyed 1,000 Americans aged 21 to 75 among a diverse range of demographics and found that 476 of respondents invest in the stock market. Of the nearly 500 investors, 15% started in the stock market in 2020.

Retail trading just wrapped up a record year in 2020, as unprecedented market volatility and Covid-19 lockdowns created a unique opportunity for regular investors to play the stock market's surprising comeback. JMP Securities estimates the brokerage industry added roughly 10 million new clients in 2020, according to app download data from SimilarWeb. More than 6 million of those clients flocked to Robinhood.

The retail trading boom has continued in 2021, strengthened by the epic short squeeze in GameStop's stock in January. JMP estimates more than 7.8 million new retail clients entered the market in January and February of 2021.

Schwab finds in its new survey that these new investors are not just young people. They are also an older cohort discovering investing for the first time. Generation Investor has a median age of 35, compared to pre-2020 investors whose median age is 48, Schwab said. More than 50% of Generation Investor are millennials, 22% are Gen X, 16 are Gen Z and 11% are Baby Boomers.

Schwab found that Generation I was more financially impacted by Covid-19. About 55% of respondents said they started investing during the pandemic to build an emergency fund and 53% said they started to gain an addition source of income.

Generation Investor on the future

This new class of investors is more bullish on the market than the investors that started in stocks before 2020.

Nearly three-quarters of Generation Investor are optimistic about the U.S. stock market, while 63% of pre-2020 investors are confident in the major averages' future, according to Schwab. Schwab sought out more Generation Investor members in addition to the original survey to make the sample size 200 to ensure it had a large enough sample to have statistically significant results.

More than half of Generation Investor believes the stock market will increase in 2021, compared to 44% of pre-pandemic investors.

Schwab's survey also showed that 43% of Generation Investor said they plan to invest more in the stock market, while only 20% of pre-pandemic investors said they would put more money to work from here.

"While it's exciting to see this new generation of investors, the industry now has a call to action – to give this group the tools and services they need to be successful over the long term," added Craig.

Thirty percent of Generation Investor said they plan to spend more time managing their portfolios, while 19% of pre-2020 investors said the same.

Favoring short-term gain

Millennial investors, especially those on stock trading app Robinhood, were criticized as a Reddit-loving day trading army that pushed up GameStop's stock in January.

However, newbie investors' appetite for short term profits is going down. While 44% of Generation Investor was trading for the short-term in 2020, only 28% said they would do that in 2021.

"This group is not all short-term risk takers – they want to make informed decisions backed by education and professional guidance, which will be important as they navigate different life events," said Andrew D'Anna, senior vice president for Schwab's retail client experience.

"Now that they've dipped their toes into investing, Gen I is eager to keep learning and evolving its strategies to successfully build wealth for the long-term," he added.

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