Investing
Navigating the rise of the ‘retail investor’
Global Banking & Finance Review®
Company
By Rob Brockington, CEO of Claro Money, the UK’s first digital financial coaching app
Retail investing is once again rising in popularity in the UK, with the main medium of investment for young investors being technology and apps that allow consumers to buy and trade stocks via their smartphones.
The pandemic has acted as a catalyst for this growth as research shows that 15% of current retail investors began investing in 2020. Retail investors now account for as much as a quarter of stock market activity in the first half of 2020, up from just 10% in 2019. This can be attributed to many consumers wanting greater financial control over their income in the uncertain pandemic economy.
Beginner retail investors in the UK are often targeted by trading platforms with the idea that they can compete within the market as a day trader. However, there is a harsh reality in that many retail investors can be left at a loss and personally effected by experiencing the high-risk nature of the least diversified financial products.
There are particular concerns about the significant increase in retail investors trading in Contracts for Difference (CFDs) which has risen by 186%. CFDs are complex and particularly high-risk investments which the majority of retail investors unfortunately lose money on even in normal market conditions, let alone the post-pandemic climate.
Trading platforms often focus on a single stock picking approach, the highest risk product for traders of any experience level. Investors need to be made aware of more suitable products for them such as index and mutual funds and exchange-traded funds (ETF). Unfortunately, whilst there is a huge demand for investment from retail, it is not currently being served in a fit for purpose way.
The problem is so great that the FCA has put £11 million into a campaign targeting inexperienced investors to help them understand the risks they are taking. However, this is simply a drop in the ocean compared to the large budgets of individual trading platforms and the combined market spend of the many trading apps available in the market today.
There is a need for greater support and guidance on retail investment that can come from financial coaches to help new investors mitigate the risks associated with retail investment. Contacting a financial coach will offer significantly better financial guidance compared to relying on using crowd-sourced information from the internet and social media sites like Instagram and Reddit.
Worryingly, a recent survey suggests that many millennials and Gen Z who invested in the stock market through the pandemic wish they had done things differently. 57% of Gen Z investors and 50% of millennials regret how they invested in the last 12 months. Encouraging retail investors to seek the guidance of financial coaches could easily prevent any novice mishaps. Financial coaches are qualified to help people make informed money decisions through expert support on many issues including learning about investments.
Financial coaches can offer knowledge and guidance on the different types of investing options available from choosing the correct platform to learning about the differences between index funds, ETF’s and options. Often well placed to support fledgling investors on the various options and terms and impacts financial coaches can explore if investing is even the correct option to reach your goals in the first place.
Ensuring that the consumer is comfortable with what they are investing in is also very important. Investors need to be making decisions that fit with their own beliefs and values, something else a financial coach can offer support on. Financial coaches are best positioned to discuss the many new ethical investment products on the market with potential investors to ensure they are making the most ethical decisions for themselves with their money.
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