In 2020, a surge of retail investors entered the stock market, resulting in the opening of around 30 million new brokerage accounts in the U.S. This influx continued for the next two years, and by 2021, retail investors constituted 25% of total equities trading volume, nearly double the percentage from a decade earlier. This retail investor enthusiasm persisted into 2023, with a record-breaking weekly inflow of $1.5 billion into the market in February. Notably, their participation in the public markets has not only remained high but has also evolved, indicating that retail investors are not just a passing trend but are actively shaping and adapting to changes in the market environment.
The visual below from Visual Capitalist illustrates the data surveyed from 1,005 retail investors by Public on the investment strategy they are interested in as part of their overall investment strategy.
Notably, dividend investing us by far the most popular strategy choice for retail investors, capturing 50% of the responses as something the retail investors are interested in. Dividends are usually seen as a stable and supplementary income and no doubt it can be a popular choice especially during inflationary times.
Investment in AI and Total Stock Market Index come as the second most popular choice after dividend investing at 36%, followed by Renewable Energy at 33% and Big Tech and Treasury Bills at 31% as third and fourth most popular choice, respectively.
Commodities, used to be one of the most popular and widely traded stocks, has fallen out of favour as the least popular investment choice amongst retail investor now.
Retail Investors Diversifying Across Asset Classes & Strategies
Investors are progressively diversifying their portfolios across various asset classes, driven by megatrends and cultural events that inspire new investment strategies. In 2023, there was a notable increase in the adoption of fixed-income strategies, which balanced out the focus on growth plays tied to trending technologies and companies.
Here are some of the key insights generated from Public platform about the trend and diversification.
This dynamic landscape reflects how investors are diversifying their portfolios in response to evolving market trends and cultural moments: –
Asset Class Expansion
On the Public platform, investors expanded their holdings to include a 25% increase in distinct asset classes i.e. stocks, ETFs, T-bills, cryptocurrencies, and alternative investments.
Rise of ETFs
ETFs gained prominence, with their share of portfolio AUM on Public growing by 4.4 times compared to the previous year.
AI Thematic ETFs
AI-themed ETFs witnessed a 34% year-over-year increase in new investors. Nvidia (NVDA) emerged as one of the most highly sought-after stocks on the platform, evident from increased pageviews and trading volume.
Cultural phenomena, both positive and negative, influenced retail investor activity in specific companies. For instance, following the success of “Barbie,” the total number of investors in Mattel (MAT) surged by 6.6 times on the Public platform.
Adopting AI in Due Diligence
Retail investors are also becoming more selective as they are placing an increased emphasis on due diligence and the careful evaluation of information sources for trustworthiness and credibility. According to Public, nearly one-fifth of investors are currently employing AI for their investment research.
In 2023, a significant majority of retail investors, 69.4%, consider trust and credibility to be of greater importance compared to 2022 when prioritizing financial information sources as many of them deem these factors as “significantly” more critical. With this, approximately 19% of retail investors have already incorporated AI into their investment research practices. Most of those who haven’t adopted AI express interest in learning how to utilize it to inform their portfolio strategies.
The increasing role of AI in investment research is currently counterbalancing the influence of social media as a primary decision-making channel where around 16.4% of investors regard social media buzz as an “important signal” in their investment decision-making process. This shift underscores the growing significance of trust, credibility, and technology-driven research methods in the evolving landscape of retail investor strategies and decision-making.
The abovementioned data and insights from Public platform offer a good insight and directional perceptive on the current retail investor market and behaviour. Overall, the retail investors’ engagement in the stock market remained strong, marked by a shift towards more diversified asset classes and strategies. There is also a notably behavioural trend on the importance of research and information gathering amongst the retail investors as they now embrace AI to make informed and analysed choices before taking action.