For a lot of millennials, it has been hard getting into the stock market. When the bull run started, they were still in school, or they graduated with a lot of debt and zero employment prospects. With a huge spike in share prices, more than half of young people sat on the sidelines. After the market crash in March at the start of the Coronavirus pandemic, millennials got their shot and took advantage of the correction.
Now that those young people are shareholders in stocks, what are the investment trends moving forward?
Robinhood and Friends
Robinhood is a commission-free investing tool that allows traders to buy and sell stocks at zero cost. The website also lets investors attain a fraction of shares, such as a quarter of a share in Amazon. With the blood bath prevalent across the financial market, new accounts ballooned in the first quarter, with more than three million new users. The average user age on Robinhood is 31. The company also reported that day-trading volumes tripled in the January-to-March period from the previous quarter.
It was not only Robinhood that attracted new users. Charles Schwab saw a 58% increase in new accounts, TD Ameritrade reported a 149% spike, and E-Trade posted a 169% surge.
Many of these Wall Street firms offer zero-commission trading, which saves retail traders a lot of money per transaction. It also allows investors not to park too much money in the stock market since you could, for example, buy five shares of Facebook and Twitter and wait for these stocks to climb $5.
It might be a bit premature to understand the new investment trends, but we have seen some patterns emerge in recent months.
Speculation or Bargains?
Speculation has been one of the top trading strategies for new investors this year. Many of them are betting on a diverse array of risky stocks to earn a handsome payday.
One of the most reported examples came in June when a bankrupt company spiked 1,000% in a week. Hertz, a century-old car rental company, filed for bankruptcy after the COVID-19 crisis killed demand. The result? The stock surged from 40 cents to $5.50 a share. The firm tried to take advantage by issuing $500 million in new shares, but management warned that investors would likely lose all their money.
Hertz was not the only insolvent business to attract speculative investors. J.C. Penney, GNC Holdings, and Chesapeake Energy enjoyed a temporary rally after submitting a Chapter 11.
With volatility subsiding and markets stabilizing, will investors search for long-term investments? Perhaps the new strategy of exchange-traded funds (ETFs), mutual funds, and index funds will dominate portfolios of 20- and 30-somethings. That is until the next market crash when chaos reigns supreme.
In many cases, armchair investors are beating multi-billion-dollar hedge funds. But analysts say this is an unsustainable trend, especially with economies reopening and millennials unlikely to stare at stock tickers all day long again. That said, Robinhood and its counterparts have demolished the barrier to entry and opened the door for millennials and older Generation Zers to stock exchanges everywhere. The power players have new competition – and it is somebody in their pajamas in their living room!