In recent times, the financial industry has witnessed a gradual shift towards implementing innovative solutions to make investing more accessible and inclusive for a broader range of individuals. Several factors contributed to shaping the investing landscape, including the introduction of fractional shares, market volatility, and elimination of trading fees by financial institutions. These innovative initiatives collectively allowed investors to buy portions of shares, making high-priced stocks accessible to those with limited funds, and reduced investing costs by encouraging more frequent trades. Together, these measures established the foundation for a more inclusive investment atmosphere, which saw a surge in retail investing during the pandemic.
The outbreak of the COVID-19 pandemic in March 2020 brought a myriad of challenges worldwide, impacting various aspects of life, including the global economy. Amidst the backdrop of economic uncertainty and market turbulence stemming from the onset of the pandemic, there was a remarkable upswing observed in retail capital market investing, marked notably by increased participation from women, and Black and Latinx communities. This sudden surge represented a significant shift in the demographics of investors—young, Black, and Latinx—and signaled a growing interest and engagement in financial markets by historically underrepresented groups.
Furthermore, the environment during the pandemic was ripe for potential investors who had been contemplating entering the market but had not taken the leap before. This was facilitated by a combination of factors that together reshaped the investment landscape, including:
- Increased Free Time: Lockdowns and remote work arrangements provided individuals with more time, leading to heightened interest in exploring new activities, including investing.
- Easy Access to Information: Social media accelerated access to a wealth of financial information and educational resources, empowering individuals to make informed investment decisions.
- Lower Barriers to Entry: Fractional shares and commission-free trading made it easier for people with limited funds to invest in the market, reducing the financial threshold for entry.
- Market Volatility: The heightened volatility during the pandemic captured the attention of potential investors, as they saw the potential for significant gains.
- Financial Insecurity: Economic uncertainty prompted individuals to seek alternative avenues for wealth accumulation, with investing being one such avenue.
- Online Communities: Social media platforms and online forums allowed individuals to connect, share insights, and collectively engage in investing, fostering a sense of community and support.
We partnered with The Prudential Foundation to understand the key factors that motivated new investors’ decisions to begin investing, and whether they now perceive investing as a viable wealth-building opportunity. Our new report provides insights into the experiences, motivations, and behaviors of new investors, with secondary data and comparisons to long-term investors.
Commonwealth’s insights can help financial service providers deliver the tools and educational resources that better meet the needs of these emerging investors. Supporting research like this can help Prudential ensure more people have access to insurance, retirement and investing opportunities.”
Sarah Keh, vice president of Inclusive Solutions, Prudential Financial
Additionally, the study sought to gather insights on the needs and aspirations of new investors, with the goal of guiding service providers in the investing industry on how to effectively meet their needs and enhance their chances of success.
This report is made possible through the support of The Prudential Foundation.
The Prudential Foundation is committed to accelerating economic mobility for communities in the U.S. and around the world. It collaborates with nonprofit organizations that help strengthen neighborhoods, address barriers to economic equality, and create new paths to financial security. Established in 1978, The Prudential Foundation has contributed more than $1 billion to increase economic mobility in communities globally, and supports Prudential Financial’s purpose of making lives better by solving the financial challenges of our changing world.
This blog post is an edited version of the report’s executive summary.