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6 ways the face of investing has changed over the last decade

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August 25, 2023
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This story originally appeared on TD Bank Group and was produced and distributed in partnership with Stacker Studio.

6 ways the face of investing has changed over the last decade

When you think of investing in the stock market, you might immediately think of rich, white men in suits on Wall Street. But in reality, millions of North Americans take advantage of the potential profit to be gained by investing their money in the market, assets, or businesses—and the face of the average investor might look a bit different than it did 10 years ago.

According to the Federal Reserve's most recent Survey of Consumer Finances, almost 53% of American families have money in the stock market—the most common form of investing. This is up from 2010, when just about 50% of households held stock. In addition, about 4 in 10 Canadians hold equity in the U.S. stock market, according to the Ontario Securities Commission.

In all likelihood, these numbers will continue to grow, as a more diverse group of people begin to try their hand at investing. New products and services make investing—and learning how to do it successfully—more accessible than ever before, while trends in industries like cryptocurrency attract a different audience to the playing field. But amid this shift, there are also newly available—and risky—strategies.

Historically, the investing game has been dominated by wealthy, primarily white players. And unfortunately, racial and wealth disparities continue to exist among who is and isn't investing. However, the balance is shifting in recent years, and a lower barrier to entry and more extensive education can allow more young and nonwhite Americans to build wealth—or lose fortunes.

TD Bank Group has analyzed survey data from financial institutions, the privately run Financial Industry Regulatory Authority, and statistics from government sources to highlight the ways the shifting identity of today's typical investor compares with 10 years prior.

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The racial gap in stock market participation is narrowing

In the U.S., Black households have historically been less active in the stock market, due to a combination of factors including lower net worth and a lower appetite for risking what they do have. This is true across North America; in Canada, for instance, about 31% of white Canadians reported investment income in 2015, compared to only about 25% of nonwhite Canadians.

But in the last few years, the racial and ethnic gap among investors is narrowing. According to Charles Schwab, 58% of Black U.S. households and 63% of white households were investing in 2022, compared to 61% and 79% of Black and white households, respectively, in 2003.

However, there is also higher participation in risky investments—such as cryptocurrency—by Black investors. The truth is, a lot of people still don't know as much as they might need to be responsible investors, and Black Americans on average have less financial literacy. As a group, Black investors are gaining knowledge, but continuing to expand their experience and skills will be crucial to their success.

Robinhood app platform for investing on phone.
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Investing gets gamified

New products, services, and apps have made investing more accessible to young Americans than before, but they also can turn transactions with real money into something that seems like a game. These companies allow almost anyone to become an investor from their phone in minutes, but they attract customers with the unrealistic idea of instant gratification—like a video game or slot machine.

A decade ago, the investment game was primarily controlled by professionals acting on behalf of individuals. But today, more investors than ever are directly investing themselves—but are not necessarily benefiting as much as they could.

Canadian research shows "participants who were rewarded with points for buying and selling stocks made 39% more trades than the control group." While it's promising to see more young people participating in investing, a higher trading volume also means that they are taking on risky strategies of buying and selling quickly, and therefore often failing to see long-term gains. Not all investment apps offer nonstock products like bonds or mutual funds, meaning consumers' portfolios aren't particularly diversified.

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New retail investors skewed younger and lower income at the turn of the decade

Retail investors, another term for nonprofessionals who invest their own money, are a bigger market factor than ever. Individual traders are responsible for almost 10% more U.S. stock trading volume than in 2013.

And they're behaving in new ways. In the past couple of years, for example, there was the GameStop phenomenon, in which a group of primarily young retail investors active on Reddit bought large amounts of GameStop shares in a short time. They inflated the value of this stock much higher than professionals said the company was worth.

These so-called "meme stocks'' introduced a new demographic of investors to the market and the potential gains to be earned from it. According to a FINRA study, "new investors during 2020 tended to be younger, earned lower incomes, and were more racially/ethnically diverse than Experienced Entrants and Holdover Account Owners."

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Younger investors are going to social media for advice (for better or worse)

As more young investors are entering the game, they are seeking out advice and education from the platforms they know best—social media. BNY Mellon found that new, young retail investors prefer to get their information from their friends, family, and social sites, rather than more reputable sources, like regulatory filings and financial journalism sites.

While there are some successes from this strategy—like the Redditors who made millions from GameStop stock—it is an incredibly risky way to get financial advice. The U.S. Securities and Exchange Commission advises investors to be careful of making decisions based on social media, as the platforms are ripe with scams.

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Financial literacy declines in the U.S. while Canadians build understanding of responsible investing

Whether from a reliance on social media for financial advice or simply the young age of today's new investors, there has been a decline of financial literacy in the U.S over the last 10 years. This is especially true among women, Black Americans, and younger investors, according to FINRA data.

But it's not all bad news. Financial literacy is increasing among Canadian investors. A 2021 study from the Responsible Investment Association showed that about 69% of respondents said they had little knowledge of responsible investing, down from 75% the year prior. And, the greatest increase was reported in respondents between the ages of 18 and 34.

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Twice as many Canadians—and also more Americans—started saving for retirement in the last decade compared with the one prior

Canada has seen a boom in retirement savings, with twice as many Canadians starting to save in the last decade than the one prior.

According to data from Innovative Research Group, 36% of Canadians who are saving for retirement do so through their employer's pension plans. A further 34% do so by investing lump sums whenever they can, and another 34% by investing a regular amount per paycheck. This bodes well for the future financial stability of Canadians, but unsurprisingly, there are still demographic splits, with women less likely than men to have started preparing for retirement.

Things are looking up in the U.S. as well, as 75% of respondents to a Federal Reserve survey reported that they had retirement savings, although only about a third of non-retirees thought they were on the right track for retirement saving goals. 

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