The stock prices of GameStop, AMC, BlackBerry and other companies soared and then plummeted during the week of May 13-17, all driven by Keith Gill, who goes by the online name “Roaring Kitty.” The financial influencer posted content at the heart of the 2021 memestock craze on X (formerly Twitter) for the first time in years. The online Reddit community r/wallstreetbets has become active again, with individuals posting their returns (and subsequent losses). In the 48 hours following Roaring Kitty’s tweet, GameStop’s trading volume was significantly higher than average.
Despite its impact on certain areas of the market, this type of investing represents only a small portion of all retail investors. In fact, only about 14% of retail investors invest because they want to outperform the market.
Fortunately, more retail investors are most interested in saving for retirement, future generations, emergency funds, or major investments like education or buying a home. For example, 48% of retail investors aim to save enough money to retire, and 43% invest to build wealth for themselves and future generations.
It’s reasonable for retail investors to figure out the right strategy to achieve these goals, which can be difficult. The flood of information from social media, peers and financial services can add to the noise.
a much needed revolution
Today, policymakers and financial institutions face an important opportunity to step up and better support retail investors.
The world needs a revolution in financial education. Research from the Global Center of Excellence in Financial Literacy shows that less than half of adults in the United States are financially literate, and Gen Z’s financial literacy rate is even lower—that’s too low.
Only 48% of investors use financial advisors. Professional and institutional investors (i.e., hedge funds, considered enemies of the meme stock movement) have access to far more expertise and information than retail investors. Although financial education continues to evolve, information asymmetries persist, with individual investors having limited access to the sophisticated tools, in-depth market data and large amounts of capital available to institutional and professional investors.
While 65% of retail investors are interested in more comprehensive advice, high costs and affordability concerns prevent many from seeking financial advice.
There are some potential solutions to this obstacle. Financial learning needs to be viewed as a lifelong journey and needs to be integrated into education systems and workplaces globally. New innovations in financial advice—including artificial intelligence advisors and other technology-enhanced advisory services—provide customized advice tailored to an individual’s financial constraints and goals.
Understand retail investor categories
Data shows that retail investors can earn lower returns through individual stock selection and, in some cases, choose riskier or less liquid assets such as options.
Enhanced data on retail investor preferences and behavior can help institutions and policymakers guide investors to build diversified portfolios that are consistent with their risk tolerance and long-term financial goals. A better understanding of the retail investor community can inform improved products, information sharing and policies to adapt to the current behaviors and vulnerabilities of retail investors.
Policymakers and financial institutions must strike a balance between increasing access to financial markets and protecting investors. This includes increasing transparency about the risks and costs associated with investing and ensuring investors are fully informed before making decisions. This looks like an improved behavioral push, leading investors to make more prudent choices and provide financial advice more broadly. These measures aim to create a fairer and safer financial environment while encouraging responsible participation in the markets.
Policymakers and the financial industry can empower individual investors by improving access to capital markets, increasing access to financial education and advice, and reducing cost barriers. At the same time, these groups must take the time to understand the retail investor population and develop products and policies that best suit their needs.
Meagan Andrews is head of capital markets and responsible investment at the World Economic Forum. Hallie Spear. Hallie Spear is an expert at the World Economic Forum’s Capital Markets and Resilience Initiative.
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