Research finds first-time investors are cautious, diligent, and purposeful

●       Two-thirds are under 35, with half of new investors stating that they live with a partner/spouse, and the majority (68%) of those living in a property they own.

●       First-time investors are behaving cautiously, with 81% approaching investing as a long-term habit.

●       91% of people report that they lack confidence when they first invest, but more than three-quarters (76%) say that after getting started they began to feel confident, interested and energised about their money.

●       Young people (18-25 y/o) tend to be more cautious investors and are also more goal-oriented than their older peers, with the desire to boost their income the most common motivator (52%).

●       The influence of social media is overstated – just 2.5% of first-time investors use social media as their sole research tool.

●       They’re overwhelmingly interested in backing individual companies, with 94% investing in shares directly; 44% invest in ETFs but just 12% buy trusts.

Freetrade, the investment platform that is on a mission to get everyone investing, today publishes research that challenges how we should think about first-time retail investors.

Despite an explosion in retail activity over the last twelve months, portrayals of retail investors remain largely superficial, typically characterising them as young, naive, impatient and highly susceptible to misleading discussions about “hot stocks” pushed via social media.

Freetrade’s research presents a different picture. Based on analysis of responses from 1,129 active investors who indicated that they had started investing for the first time with Freetrade, this research found that these investors are setting realistic, long-term goals, and showing signs that they are developing constructive, life-long habits.

They own property and are settling down

Two-thirds of Freetrade’s new customers are aged 35 or under, with 41% between 26-35. In 2020, the share of customers above 35 increased by 102% for first-timers and 65% for more experienced investors.

More than a quarter (27%) are female and 71% male. The proportion of women on Freetrade who identify as ‘first-time investors’ nearly tripled (from 11% when surveyed in January 2020), and the share of experienced female investors grew from 4% to 18%.

Half of new investors live with a partner or spouse, with almost half of this group (49%) looking after at least one dependant. 68% of couples living together do so in a house they own, with a total of 34% of first-time investors living in a property they own.

They’re in it for the long term

The perennial explanation for this huge influx of new investors has been lockdown boredom. That is simply not reflected in the research.

Only 4.9% of respondents cited “lockdown boredom” as the sole reason for starting investing (and only 23% cited this reason as one of many contributing factors).

Similarly, this new cohort of investors are not in the markets to make a ‘quick buck’. Amongst the most common reasons given for starting investing, respondents said that they were trying to achieve peace of mind (38%), they want to boost their income (47%), and they want to save for a property (35%). These are much more common than shorter-term goals, such as saving for a major one-off purchase (14%) or holiday (9%).

Instead, 81% of new investors have turned investing into something they do at ‘least once every few months’, with only 14% reporting doing it every week. Almost half of all investors (45%) are investing monthly, suggesting that most are factoring this into their monthly expenses.

They’re building confidence

When asked about their feelings about investing before and after they started, the findings were clear.

Whereas 91% of respondents said that they lacked confidence before investing, more than three quarters of respondents reported feeling confident, energised or interested in investing and money after they got started.

Of that number, about 45% held a portfolio valued up to £1,000, suggesting that one of the main ways for people to build confidence in investing is to practice and build habits with small sums of money first – a practice only made possible with commission-free investing.

The influence of social media is overstated

Just 2.5% of first-time investors use social media as their primary research tool, which should assuage fears about the influence of ‘unfiltered’ investment advice. Social media tends to be used as one of many sources of information, being used to some degree by 41% of new investors, the same figure as the financial press and marginally more than free or ‘freemium’ financial research providers (39%).

Young people are the most cautious

Investors aged 35 and under are more likely to invest with a clear goal in mind, with the most popular being to support their income (51%) and buy a property (43%).

Aside from being the most purposeful, they also have conservative investment habits that are similar to those of older, more experienced investors.

Young investors are more likely to hold ETFs in their portfolio and, on average, they trade about half as frequently as those aged over 45. However, all age groups included similar proportions of respondents that spent a couple of days or more researching an investment before buying – for the youngest that was (66%) compared to 63% for those who are older.

What are they investing in?

New investors are overwhelmingly interested in backing individual companies (94%).

Almost half (44%) hold ETFs, which are much more popular among younger investors: 48% of those aged 35 and under invest in them, compared to 35% of those older.

Investment trusts (12%) lag behind, with experienced investors almost twice as likely (23%) to invest in them as new ones. In contrast to ETFs, investment trusts are more popular among older people: they are held by just 9% of those aged 25 and under.

A sizeable portion (38%) of new investors have some cryptocurrency holdings, suggesting that once exotic new asset class has decidedly become more mainstream.

Adam Dodds, CEO of Freetrade, said: “These findings suggest that the buzz around investing is not a fad. Millions of people are getting into investing for the right reasons and picking up an important, life-long habit which should be nurtured and celebrated.

“While we have seen a number of stereotypes about new and inexperienced investors taking hold in the last twelve months, our research shows, by contrast, that their behaviour is much more conservative.

“What we do need to worry about is the behaviour of platforms. We’ve seen genuine, positive momentum build in the DIY investing space this year. It would be a shame if retail investors ended up getting shouldered with heavy losses because they were encouraged to dabble with complex, leveraged derivatives. Firms that offer CFDs and spread betting are simply duping their customers into speculating to line their own pockets, and they threaten to undo the progress made by damaging the reputation of responsible investing.

“Rather than scrutinising the behaviour of a small segment of new investors online, we should focus on the dubious practices of platforms that are acting against their customers’ best interests.”