RESEARCH The changing demographics of retail investors

Younger individuals have been increasingly engaged with investing in recent years, at least in terms of putting after-tax discretionary money to work in financial markets. Following the global financial crisis, the share of adults investing was about the same among working-age adults above and below 40 years old, respectively. By 2019, the younger age group’s annual investing share had more than tripled, compared to a 60 percent increase for 40 plus. And the spike in 2021 relative to 2019 was twice as large in percentage point terms for those under 40 years old compared with the 40 and over group. As of last year, the investing share for the below and above 40 groups settled at about 9 percent and 14 percent, respectively.

Figure 1: Growth in investment account use has been more pronounced for those under 40 years old.

The rise of younger investors followed a nonlinear path during the pandemic. Figure 2 depicts a temporary surge in the share of younger individuals investing relative to those above forty years old. Starting in early 2020, the number of individuals under 40 years making investments rose sharply culminating in January and February 2021 peak. This timing coincided with widespread reports of social-media-driven retail investing fads that included concentrated positions in single stocks.

Figure 2: The number of younger individuals making investments surged during sporadically during the pandemic.

Building on prior research that found that men were more likely to use investment accounts to save take-home pay, our data extend the analysis to the pandemic era.⁷ Figure 3 shows the annual share of men and women in our active checking account user sample transferring funds to investment accounts.

Figure 3: Investing rates increased for both men and women since prior to the pandemic, with a somewhat larger increase for men in 2021.

Zooming in to a monthly view, we can see sharp gender differences in investing around particular market and social events during the pandemic.⁸ March 2020 was one of the most volatile months for the stock market in decades, as prices reacted to the pandemic economic disruption. The S&P 500 declined by as much as one-third from February 19 to March 23, 2020. This was paired with a large spike in the savings rate, which increased the amount of investable funds. That March, the share of women investing fell from a recent average of about 70 per 100 men, to 57. Later in the pandemic, additional government stimulus and heightened interest among new investors coincided in the early months of 2021, and the share of women making new investments fell to below 55 per 100. The increase in men investing was a temporary phenomenon during the pandemic. The ratio of women-to-men making investments gradually recovered to the 2019 average ratio by late 2022, albeit still well below parity or even the decade-ago average.

Figure 4. Men became notably more active than women in terms of investing around specific episodes of pandemic-era financial volatility.

Black and Hispanic individuals’ transfers of funds to investment accounts increased on an absolute and relative basis over the past decade, as shown in Figure 5. In terms of the annual share of individuals transferring money to investment accounts, the rate for Black and Hispanic individuals increased to over 3 times the 2010-15 average as of 2023, compared to a little over 2 times for White and Asian. In 2023, the share of Black and Hispanic individuals making investment transfers had fallen notably from its 2021 peak but remained significantly above pre-pandemic levels. Trends in investment transfers by race have mirrored dynamics observed in the distribution of income growth. That is, from 2016 to 2021, Black and Hispanic individuals’ incomes experienced relative gains, which fell from stimulus-fueled peaks in 2022-23.⁹

Figure 5: Expansion of investing over 2016 to 2021 was more pronounced for Black and Hispanic individuals compared to White individuals, in percentage terms.

Even after the progress over the last decade, Black and Hispanic individuals still make up a disproportionately small share of the population making such investments. Moreover, the more volatile pandemic-era rise and fall of these racial groups’ investing activities suggests potential vulnerability to temporary asset price shocks. That is, steady investing over time can help reduce the potential impact of market volatility on investment performance, whereas concentrating purchases in time increases the chances that temporary price swings could lower investment returns.

Summary

Investors in brokerage accounts are less likely to be White and more likely to be under forty years old than five or ten years ago. Women have maintained a roughly constant share of the investing population on net, notwithstanding short-term fluctuations. Sharp, temporary increases in the relative number of younger investors and men transferring money into investment accounts during acute phases of the pandemic-era market volatility suggest a potential high degree of heterogeneity in investing patterns during times of heightened uncertainty.

Implications

The trends presented in this report reflect complex interactions between the unique pandemic-era economic environment (e.g., excess savings and fiscal stimulus), social-median-driven investing fads, and a changing investment platform landscape. With respect to wealth accumulation dynamics, demographic shifts have been stark. In addition to prior Institute findings¹⁰ involving trend-chasing in stock and crypto markets—apparent differences in use of financial investment accounts across population subgroups during the pandemic may inform policymakers seeking to understand and adapt to a changing retail investing landscape. New market entrants may provide a potential opportunity for innovations in financial education, and effective solutions are unlikely to be one-size-fits-all.

Relative increases of market risk-taking around pockets of extreme market volatility for men and younger individuals may suggest that future crises could feature pockets of “doubling down” of risk-taking at a time when those individuals’ jobs may be more at risk.¹¹ During the pandemic, a strong government response—both fiscal and monetary—supported a rapid rebound that insulated individuals who added market risk in March 2020 (ex post a likely fruitful move): job security improved to historically favorable levels by mid-2021 and the stock market had recouped losses even earlier.¹² The prolonged downturn of the Great Recession illustrates a counterpoint that may have carried less favorable outcomes for analogous investing behavior.¹³