More are investing in the stock market every day causing record highs. These new investors (retail investors) have had huge impacts on the market. However, a question that remains unanswered is, what happens next?
Four of the largest online brokers have reported new accounts grew 170 percent in the first quarter of 2020 (CNBC, 2020). Young investor, Ryan Dsouza said, “It was much easier to invest because of online trading.” The pandemic has also played a major role in creating this surge in investors with government stimulus packages designed to mitigate the economic impact of the pandemic compelling many to take their shot in the market. Gamblers are also a part of this increase in investors, as many shifted money to the market as a result of the pandemic’s shutdown of casinos and sports betting.
The impact of retail investors has been astronomical. The market as a whole has become more speculative and this was extremely prevalent in Gamestop and other stocks. This speculative nature is in large part due to new retail investors feeling they can “play around more” with government stimulus money and the entrance of gamblers. Despite these headlines, retail investors have also invested in more reliable stocks and their money has driven the market to record highs. In fact, the S&P 500, an index of the top companies and often used to measure economic growth, grew 16% in 2020, approximately double the average, despite a market crash (Investopedia, 2020 and The Washington Post, 2020).
While speculation is starting to dry up as people interested in it move to cryptocurrency, the question remains what the future impact of these new investors will be. New investors will not just disappear and despite the seemingly never-ending growth of the market, Tom Kunkle, a financial advisor, states, “The overall market will take a breather at some point. It will be before all of the stimulus money is dried up.” New investors will be forced to learn more about the market, speculate less, and make calculated choices to survive the eventual bear market to come.