January 20, 2022
For decades, investors left their money to grow in mutual funds and passively-managed strategies like index funds. They were assured by MBAs and financial planners that they’d be able to retire wealthy by “investing for the long-term.” However, COVID-19 and the GameStop short squeeze has motivated millions of investors to “spread their wings” and try their hand at stock-picking and self-managing their portfolio.
Are they doing well? That depends. If investors bought and held Robinhood’s 100 most popular stocks at the start of last year, then their money would have doubled. But, very few investors are buying 100 stocks and even fewer “active” investors are holding for the long-term. A Morning Consult survey shows that half of new active retail investors only started investing in the last year and many of them are leaning on friends, family, and social media to help them make money moves.
Given that investors are seeking their edge by reading tweets and talking with friends, it should come as no surprise that a significant number of Americans are not feeling very confident about investing. In fact, a Gallup poll demonstrated that there is statistical significance in confidence among investors who have a financial advisor versus those who don’t. In short, investors with no financial adviser are verifiably less confident than investors with one.
Only 9% of 18-34 year olds get information about investing from a financial planner. This means that almost a third of investors who are “winging it” are not as confident as they could be. This might be why Americans are increasingly turning to experts for advice. An October 2020 study from Cerulli Associates shows that “40% of investors surveyed in 2020 say they need more advice than before and 56% are willing to pay for it.”
There is a window for peaceful coexistence between financial planners, experts, and retail investors who want to try their hand at managing their own portfolio. Investors don’t need to dump 100% of their money into passive or active strategies to be successful. In fact, they might find more success by doing a mix of both. Shameless plug: this is why we built the Front app, a co-pilot for retail investors looking to make smarter, more confident investment decisions.