New wave of retail investors flood Australian market

A combination of record-low interest rates and COVID-19-induced lockdowns is seeing a new wave of retail investors enter the sharemarket for the first time.

A study by Investment Trends showed that 435,000 Australian retail investors made their first trade in 2020, taking the total number of active retail investors in Australia to a record high 1.25 million.

Of the first-time traders, 18 per cent were under 25 years of age, while 49 per cent were between 25 and 39, indicating a spike in Millennial and Gen Z trading activity.

“COVID-induced market volatility and a low interest rate environment were important prompts for first-time investors entering the market, but even more prominent was the desire to learn a new skill, highlighting how many Australians chose to spend their free time during the lockdowns,” Irene Guiamatsia, head of research at Investment Trends, said.

But the record number of investors also showed a strong drive towards international shares, with the number of investors actively trading international shares, as opposed to ASX-listed options, rising from 54,000 to 109,000 in the 12 months to December 2020.

“The spectacular recovery witnessed by US stocks in the second half of 2020 has captured the attention of a global audience, prompting many Australians to consider investing beyond local equities,” Ms Guiamatsia said.

However, the growth in retail investors is providing challenges for the industry, with Investment Trends urging low-cost investment platforms to find ways to provide education at a scale.

In fact, as many as 27 per cent of new investors indicated they wanted additional education on the platform about investing strategies.

“A greater choice of investment platforms has been a key driver for uptake, with recent new entrants giving investors more choice than ever.”

“Too many times, we’ve heard stories of investors getting caught up in FOMO, making rash short-sighted investing decisions. But our research highlights that investors are hungry for knowledge, resources and tools to help them build long-term wealth. Investment platforms that effectively support their clients on their investment journey will stand out,” Ms Guiamatsia concluded.

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