As reported by DIY Investor in May, one of the few positives to emerge from the pandemic was the fact that people decided to take personal financial control like never before – Coronavirus Lockdown Fuels Spike in DIY Investing
Execution only brokers and retail investment platforms reported record levels of new business; young investors were particularly well represented, a cause of no little pleasure at DIY Investor – writes Christian Leeming
Now, an investigation by consumer finance portal This is Money has reported ‘the rise of the lockdown share trader: How buying and selling shares became popular again as Britain was stuck at home’.
One of the most important factors to those that feedback re DIY investing is the feeling of being in control; many will have experienced the short, sharp economic shock delivered by the pandemic and pledged not to be caught out again.
With the national debt now roughly equivalent to GDP, those content to trust that the state pension will be sufficient to sustain them in their dotage, will surely rank as extreme optimists.
A founding principle of DIY Investor is that people will inevitably have to take greater financial control as personal responsibility replaces state provision; we believe that education and engagement are vital to making informed investment decisions.
people will inevitably have to take greater financial control
In the past those new to investing tended to buy funds and investment trusts, and they remain popular particularly as annual management fees have fallen since the FCA’s drive to improve transparency; however This is Money (TiM) found that this year has also seen an increase in trading activity in individual company shares.
For many working from home (WFH) has become the new normal, at least for the foreseeable, and information and speculation about the likely effect of the pandemic on the economy, the winners and the losers, has aroused the interest of a new generation of market watchers.
Whilst there may have been some questionable, or even reckless behavior along the way – Gamified investing apps could seriously damage millennials’ wealth – there is no doubt that some have reaped significant rewards for doing so after buying in after markets hit the nadir of a coronavirus crash on 23rd March; global stock market names such as Tesla, Apple and Amazon have been flying high.
education and engagement are vital to making informed investment decisions
So what is going on? The FTSE 100 entered the year with all guns blazing at 7,604 with much speculation as to when it would top 8,000; lockdown sent it crashing to a low of 4,993 at the end of March.
Even though it has not yet recovered all of its losses, the FTSE closed last week (6th Nov) at 5,910; those backing the index at the end of March could be sitting on gains of 18.5%.
However, that is only part of the story because in extremely volatile markets, there have been clear winners and losers according to the ways in which companies have either been walloped, or bolstered by the pandemic; the resurgence in people investing or trading directly in shares could reflect investors’ quest to find the winners, or perhaps a realization that the rainy day they should have been saving for has actually arrived.
This trend mirrors the experience in the US, which has a more deeply ingrained culture of investing and financial self-reliance; TiM spoke to a range of DIY investing platforms and some of the digital disruptors to understand how more of the nation became hooked on the stock market while in quarantine and what this might mean for the future of investing.
Surge of DIY investing in lockdown
TiM found that all major platforms reported an increase in trading in stocks and shares during the nationwide lockdown this year compared with the previous year; a key factor is believed to be the increase in people working from home having more time to take stock of their finances and manage them to best effect.
A further factor could be the fear that central bank stimulus and soaring government debt could fuel inflation, thus eroding the real value of their cash savings; buying tangible assets such as shares could be a response.
The UK’s largest DIY investing platform, Hargreaves Lansdown reported a 221% rise in the number of trades in the three months to the end of June compared to 2019; sells increased by 183%, but the greatest increase was from those buying into the market with purchases up by 258%
people working from home and having more time to take stock of their finances
Share trades at Interactive Investor were up 119% year-on-year, while trading volumes at AJ Bell were three times higher than the same period in 2019.
Elsewhere, social trading platform eToro, which launched zero commission trading, saw a spike in new accounts over lockdown and a 420% uptick in the number of stock trades from January to June, compared to 2019; Freetrade also reported record figures, with a 26% increase in order volume between April and July.
So, who is taking to DIY investing?
Traditonally, investors in shares in the UK have been an older generation confident to eschew financial advice and make their own investment decisions; younger investors tended to prefer funds and more recently ETFs.
However, things have apparently changed; of the 80% increase in customers attracted by Freetrade, 27% were aged 18 to 25, and 42% were 26 to 35; 40% of new customers signing up with eToro were aged under 29.
Such a shift reflects what has been dubbed the ‘Robinhood effect’ in the US, where young investors have embraced the crop of low cost trading apps, fueling the long running bull market in technology stocks such as Tesla, Apple, Amazon and Zoom.
On this side of the Pond, commission free apps such as Freetrade, Trading 212 and eToro have had considerable success in attracting younger investors; the challenge from a DIY investing perspective is to engage this next generation in long term wealth creation, rather than speculative trading.
a surge in activity as they roll out trading apps and ready-made investing solutions
However, younger investors have not exclusively been attracted by the new kids on the block, traditional platforms have also experienced a surge in activity as they roll out trading apps and ready-made investing solutions of their own; AJ Bell Youinvest reported that 22% of its new customers in the first six months of the year were aged 21 to 30, compared to just 13% of its overall customer base – average customer age fell from 44 to 38 in 18 months.
Interactive Investor also saw record numbers of younger people opening accounts; the number of new accounts opened by 25 to 34 year-olds increased by 238%. However, it reported that the majority of trading during lockdown was conducted by older investors – around 75% by those aged 45-plus, possibly as they reassess their retirement plans in light of the pandemic.
What are they buying?
Most markets and industries were hit by the coronavirus pandemic, so there were opportunities aplenty, and many still consider UK stocks to be ‘cheap’.
Hargreaves Lansdown saw increased activity in the travel sector, which was hit so hard by the pandemic; easyJet, Carnival and IAG made its top 10 most traded list; Tesla was the most popular stock at Freetrade, followed by Apple, Microsoft, Amazon and Boohoo.
Both Interactive Investor and AJ Bell had Lloyds Banking Group as their best-selling stock, with IAG, BP, Boohoo, Barclays, EasyJet and Avacta featuring. UK household names featured with many platforms, with a focus on dividend paying sectors like oil, banks and pharmaceuticals; JD Wetherspoon, Games Workshop, JD Sports and Ocado also proved popular.
Those that turned to DIY investing for the first time during lockdown and stayed in the market should have done well; markets today have been bolstered by the prospect of a Covid vaccine which saw the FTSE 100 add 5.5%, and although it seems likely there will be ongoing volatility as good news ebbs and flows, those investing for the long term can hope to benefit from a post-pandemic rally.
It is far from certain how much the ‘new normal’ will look like the pre-covid world – will travel ever return to the record levels seen in 2019, and will fossil fuels become the ‘new tobacco’ as ESG investing increasingly comes to the fore?
very many more people will take personal control of their financial future
Investing in individual stocks over funds and trusts may not be for everyone, but whatever your level of experience and confidence, there will be ways to benefit from these changing trends, and build long term wealth, with technology as a great enabler.
All of the platforms surveyed by TiM said they believe investing will remain popular even after lockdown; in what we believe is a ringing endorsement of DIY Investor’s core principles it seems likely that very many more people will take personal control of their financial future.
Access to financial education, timely information and discussion will be key as this new generation of investors build their own diversified, long-term portfolios; the consensus from the platforms is that fund investing will remain the most appropriate place for many new investors but the extra appetite for shares suggests a rising number of people are confident enough to make their own investment decisions.
Do it Yourself, Do it With me, Do it For me – just don’t do nothing!