Investors take to taxable accounts for retirement savings
Friends and family are influential in investment decisions, especially for younger investors, who have lower incomes and smaller balances than experienced investors.
Despite the economic uncertainty caused by COVID-19, new and experienced investors took to online brokers in droves last year, according to the FINRA Investor Education Foundation and NORC at the University of Chicago. Most of those investors were trying to save for retirement, but were using taxable accounts to do it, the organizations explained in a February paper, “Investing 2020: New Accounts and the People Who Opened Them.”
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FINRA and NORC surveyed nearly 1,300 households in October and November 2020. Respondents were selected from NORC’s AmeriSpeak panel.
Fifty-seven percent of respondents opened a new account in 2020, according to the paper. Of those, 66% had never opened a taxable account before.
The new class of investors is younger and more diverse than experienced investors. They also have lower incomes and smaller balances.
“With no-minimum and low-minimum investment accounts now widely available (for non-margin investors), the barrier to entry for retail investing has fallen, allowing greater access than ever before,” according to the paper.
In fact, being able to start investing with a small amount of money was the top reason new investors gave for entering the market (35%), followed by wanting to invest for retirement (27%) and finding cheap stocks thanks to dips in the market (26%). Experienced investors cited saving for a goal other than retirement (25%), investing for retirement (22%) and being able to invest small amounts of money (21%).
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When asked why they waited until 2020 to open a new investment account, 17% of new investors said they wanted to save for retirement, as did 15% of experienced investors.
Investors, by race
Asian (34%) and white (26%) investors cited retirement as their top reason for opening a new account last year. Latino/Latina (43%) and Black (35%) investors were drawn to the markets by their ability to invest with a small amount. Not wanting to miss an opportunity also inspired investors to jump into the markets: Black investors, 27%; Asian investors, 23%; white investors, 22%; Latino/Latina investors, 17%.
Beyond these areas of consensus, investors had a checkerboard of priorities when opening new accounts in 2020. Black investors were prompted to enter the markets on a friend (26%) or family member’s (20%) suggestion, and nearly a quarter of Asian investors were drawn in with a sign-on bonus.
Investors, by age
Friends and family are highly influential on younger investors’ decisions. Over half of investors between ages 18 and 29 said they opened a new account because a friend suggested it — significantly fewer followed a family member’s advice (31%). The power of persuasion fell to financial advisors for older investors. Fifty-three percent of investors 60 and older, and 24% of those between 45 and 59, entered the market on an advisor’s counsel. Just 22% of investors under age 44 followed a professional’s advice.
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Investors, by gender
Men reported higher balances on average than women. Thirty percent of men said they had $25,000 or more in their account, compared to 26% of women. Meanwhile, 23% of women said they had less than $500, compared to 15% of men. Women were also more likely to say they didn’t know or didn’t want to say how much they had saved.
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