Where Are They Now? The "Meme Stock" Generation is Here to Stay

Recent research by the FINRA Investor Education Foundation suggests the influx of new retail investors during the COVID-19 pandemic and throughout the "meme stock" rally are still investing, building account balances, and increasing their investment knowledge, and are more diverse.

TL;DR

• High Retention Rate: The study found that a significant 78.9% of both new and experienced investors who opened accounts during the early months of the COVID-19 pandemic remained active in the market two years later.
• Demographics: The average age of beginning investors is around 33.3 years. There is a balanced gender split among new investors, with a slight male predominance (52.9% men, 47% women). While the majority of investors in all three investment groups were white, New Investors were more diverse.
• Knowledge and Goals: New investors have shown a modest improvement in their investing knowledge, driven primarily by "learning by doing." 
• Funding Sources & Account Balances: Fifty-four percent of New Investors reported using money from their paycheck to fund their new investment account, with 48 percent using savings. 23% of new investors maintained balances between $500 and $2,000, and 26% of them were between the ages of 18 and 29!
• Engagement: The plurality (21 percent) of New Investors and Experienced Entrants (22 percent) reported monitoring their investments a few times a week. The majority of investors (60 percent) who reported monitoring their accounts multiple times a day did so using a mobile app. When it comes to digital engagement, investors strongly prefer platform features that allow them to learn about investing over features that offer entertainment
• Electronic Statements: The majority (68 percent of New Investors, 69 percent of Experienced Entrants, and 54 percent of Holdover Account Owners) of all investor groups preferred to receive account statements electronically; 

Nearly 80% Retention Rates!

The COVID-19 pandemic and the ensuing meme stock rally from 2020 to 2023 marked a watershed moment in retail investing. This period witnessed a significant influx of new investors into the stock market, driven by a mix of unique circumstances, technological advancements, and cultural phenomena. This article explores the trends and behaviors of these new retail investors, arguing that this influx was a positive development, enabling many to learn to invest, build account balances, and pursue their financial goals.

The pandemic and the meme stock rally catalyzed an unprecedented surge in new retail investors. According to a 2023 report by FINRA, a significant majority (78.9%) of investors who opened new accounts in early 2020 were still active in the market two years later. This trend suggests a durable rise in the investing population, debunking the notion that the influx was a mere temporary reaction to the pandemic or market conditions.

Account Balances Persist and Vary by Demographics

In addition to remaining in the market, the report cites evidence of investors leaning into investing by adding funds to their accounts. When asked about account activity, almost half of Experienced Investors (46.1 percent) added funds to their accounts without withdrawing funds at any time during the period under consideration. New Investors more frequently withdrew funds compared to Experienced Investors (31.0 percent vs. 16.3 percent, respectively).

New Investors held much lower balances, in general, when compared to the other investor groups. More than twice as many new investors held account balances less than $500 (33 percent) when compared to experienced entrepreneurs (16 percent), yet 23% of new investors maintained balances between $500 and $2,000, and 26% of them were between the ages of 18 and 29!

In general, younger investors held accounts with smaller balances, while older investors had accounts with larger balances. Indeed, while 52 percent of investors aged 60 and over held accounts with $25,000 or more, less than one-tenth of that number (4 percent) of investors aged 18–29 held similar balances. Conversely, only 6 percent of investors aged 60 and over held less than $500 in their account, while nearly seven times that proportion of 18–29 year-olds held under $500 in their account.

Learning by Doing is Key to Engagement

One of the most striking aspects of this new wave of investors was their journey of learning and growth. Initially, many new investors had low investing knowledge, but a significant improvement was observed over time. From 2020 to 2022, new investors improved their investing knowledge scores by 9.0%, indicating a tangible gain in financial literacy and understanding. This increase in knowledge underscores the effectiveness of “learning by doing,” where hands-on experience in the market provides real-time education.

The investment behaviors and preferences of these young investors have evolved significantly since 2020. They are more inclined towards digital engagement, with nearly half of them preferring mobile apps for accessing their accounts. This preference for digital platforms aligns with their lifestyle and tech-savviness, allowing them to manage their investments more efficiently and stay informed about market trends.

When it comes to digital engagement, investors strongly prefer platform features that allow them to learn about investing over features that offer entertainment.

Additionally, these investors have shown a preference for platform features that facilitate learning and customization, according to the same 2022 survey. This preference indicates a shift from passive investment strategies to more active and informed participation in the financial markets. Young investors are not just putting their money in the market; they are taking the time to understand where and how their money is being invested.

The meme stock rally of 2020-2023, a byproduct of the COVID-19 pandemic, marked a turning point in retail investing. It brought a wave of new investors to the stock market, many of whom have since developed into savvy, informed participants. This trend represents a significant shift towards democratizing investment and fostering financial independence. While the meme stock phenomenon had its risks, it ultimately served as a catalyst for many to embark on a journey of financial growth and education. The positive outcomes of this period – increased financial literacy, account balance growth, and sustained engagement in the markets – affirm that the influx of new investors was not just a fleeting trend but a foundational shift in the investment landscape.