What’s Going On Here?

In February 2023, Retail investors poured money into financial markets once more – and this time around, they’re seriously doing their homework.

What Does This Mean?

Data out in February 2023 showed that retail investors have been pouring an average of $1.5 billion a day into US stocks. That’s more money than ever before: in fact, it’s just shy of four times the average clocked up between 2014 and 2019. But markets have changed since the heady days of 2021, while interest rates are only getting higher – and that’s left some observers wondering what exactly lit this fire under gung-ho retail investors.

It’s actually pretty simple. We spoke to the Finimize community at the end of last year, and even then their optimism was palpable: 80% of respondents thought that markets would be recovering by the second half of this year – so they were stockpiling cash, watching from the sidelines, and waiting for the right time to make a move. In the meantime, they’ve picked up on a few promising signs: the broader economic narrative seemed to brighten a bit, stocks began to rebound, and game-changing AI use cases set the world abuzz. And with that, retail investors were ready to get back into the market.

Why Should The Financial Services Industry Care?

Retail investors are in a league of their own

Professional investors are feeling pretty bearish right now, and they’re side-eyeing the can-do attitude of retail investors with a mixture of smugness and skepticism. But it’s worth remembering that pros and laypeople aren’t playing the same game: after all, retail investors can afford to take short-term hits in order to make long-term gains – but institutional investors, who tend to be judged by their annual performance, don’t have that freedom. In a sense, these two groups are running entirely different races, so it should come as no surprise that their game plans differ too.

Research, not (just) Reddit

There’s also something wrongheaded about the idea that this inflow is “meme stock mania 2.0”. That angle makes for a colorful headline, sure, but a quick look at how retail investors are trading right now shows that spin is pretty out of date – something that our CEO Max Rofagha pointed out recently in the Financial Times. Lay investors have gained experience, knowledge, and a few battle scars over the past couple of years, and they’re using better tools and information to guide their plays these days.

That change is clear in the way things have played out in recent months. In the past, most retail investors would have been found waving a white flag in a down market – but that’s not what happened this time. And the stocks retail investors have been hoovering up show that they've done their homework too: yes, they bought Tesla – at a reasonable enough price – along with sensible stalwarts like Nvidia, Microsoft, Amazon, and Apple. That might suggest some over-reliance on tech, but the SPDR S&P 500 ETF Trust was another crowd favorite, a counterweight that doesn’t exactly scream “meme stock madness”. There is plenty of room for retail investors to explore more diversified sectors and assets, though – and that’s something this kind of ongoing education and increased experience only makes more likely.

Institutions need to adapt if they want to keep up

In sum, institutions and professional investors are going to have to adapt now retail investing’s come of age. And some big banks and asset managers have already reacted – the explosion of thematic ETFs makes that clear. But as time goes on, you can expect far more institutions to wake up to the power, the sophistication, and the concerns of retail investors. For more on that, check out the results of our latest Modern Investor Survey, covered by the likes of CNBC, Business Insider, Fortune, and Reuters.

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Watch the full conversation with Eddie Domnez, The Finimize Podcast Host, Stephane Renevier, Finimzie Global Markets Analyst and Max Rothery, VP of Community