Unpacking the new generation of younger, risk-taking, social media-focused investors

After 2021 saw a surge in so-called “retail investors” who handpick individual stocks and use trading platforms, including many who were delving into the markets for the first time, what will 2022 hold in store for this new generation of investors?

In a new survey of more than 1,600 respondents in the U.S., Investing.com found that the nascent retail investors are here to stay — at least for the next 12 months. Eighty-six percent of last year’s first-time investors plan to invest more in the stock market in 2022.

But who exactly are these first-time investors, what influences their investment strategy, and how do they differ from more seasoned investors?

According to the survey, first-time investors are younger (63% from Generations X, Y, and Z, compared to 45% of other investors); earn less personal income (24% above $100,000, as opposed to 49% of more experienced investors); and are more likely to be female (37% versus 17%). They are twice as likely (42%) as other investors (19%) to use Reddit or other social media platforms to inform their investment decisions. And they are less likely (16%) than their more experienced counterparts (32%) to consult with a financial advisor.

“A new generation of retail investors, which entered the stock market during the pandemic, is turning it on its head,” said Jesse Cohen, senior analyst at Investing.com. “This group is more upbeat than the older generation and they're doing their own research on social media platforms, like Reddit, Tiktok, and Twitter (NYSE:TWTR), instead of paying attention to the Wall Street analysts.”

First-time investors are also far more likely to take perceived risks. Fifty-eight percent include cryptocurrencies in their portfolio, compared to 37% for experienced investors. Similarly, they are more inclined to purchase meme stocks such as AMC Entertainment (NYSE:AMC) (29% for first-timers versus 10% for other investors) and GameStop (NYSE:GME) (15% for first-timers versus 8% for others).

“The rise of the first-time retail investor has changed the entire character of the market,” said Cohen. “They’re much more inclined to invest in risky meme stocks and cryptocurrencies than the older generation, so the professionals are no longer the only force that matters.”

In terms of trading platforms, 36% of first-time investors use Robinhood (NASDAQ:HOOD), a financial services company that generated significant buzz in 2021. Only 15% of more seasoned investors use Robinhood, compared to 32% who use TD Ameritrade and 28% who use Fidelity. At the same time, 26% of first-time investors also use TD Ameritrade, while just 15% use Fidelity.

Significantly more first-time investors (37%) than others (21%) report that they trade for short-term gain. Additionally, first-timers are slightly more optimistic about the future of the markets — with 84% expecting the stock market to increase in value during 2022, compared to 75% of other investors.

“After wrapping up another strong year of gains in 2021, there are plenty of reasons to be cautious about the stock market in 2022,” Cohen added. “Looking ahead, stocks look set for a volatile year amid risks related to the Federal Reserve’s tightening plans and the ongoing coronavirus health crisis.”

So, it’s clear that first-time investors are highly differentiated from more seasoned investors. But are their new-age strategies working? A greater number of experienced investors (87%) than first-timers (67%) reported a profit from their investments in 2021. Now, the next 12 months could go a long way in determining whether the rise of this younger, risk-taking, social media-focused breed of investor will actually endure as a long-term trend beyond 2022.