• Pandemic contributed to trend
• As a result, politics and companies could also become more diverse
More and more diverse people around the world are entering the stock market. That’s according to a Yahoo Finance-Harris Poll, available to Bloomberg. The survey is conducted twice a month and focuses on “investor attitudes, consumer behavior and work trends,” according to Yahoo Finance.
Younger people are entering the stock market
On the one hand, there are more and more younger people investing their money in stocks. The survey shows that more people under the age of 35 are now investors. In addition, the trend for middle-aged investors has changed. While in 2016 more people between the ages of 45 and 64 were invested in the stock market than younger people, the reverse is now the case. Only from the age of 65 did the number of equity investors increase again compared to 2016.
Investors are also becoming more diverse
But not only are more and more younger investors trying their hand at the stock market, the image of investors is also becoming more diverse. While less than 5 percent of Black or African American and Hispanic or Latino investors would have owned individual stocks in 2016, by September 2020 it was over 10 percent. In addition, the survey also makes it clear that the said investors would also have increased their equity holdings faster than white market participants.
Various causes
A combination of various factors led to the change. There is now a very wide range of different investment products with which even newcomers to the capital market can try their luck. In particular, the growing variety of Exchange Traded Funds makes it easy for investors to participate in what is happening on the stock exchange even without extensive knowledge of the market. In addition, there are also online trading offers such as the popular Robinhood app, which makes the stock market accessible to a younger clientele.
So Wall Street no longer belongs only to rich white men, a trend that may have been accelerated by the Corona crisis, says Bloomberg columnist Aaron Brown. Billionaire Leon Cooperman also blamed the pandemic for the rapid increase in the number of Robinhood users in recent months. A long-lasting lockdown coupled with increased unemployment would have meant that more people would have dealt with stock market issues. The extremely low interest rates would also make an investment in the stock market more attractive.
Consequences for society and politics
Brown believes that investor diversification should have far-reaching implications for the market itself, but also for politics and business.
The diversity of a company’s investors could also lead to more diversity within the company itself. Because while the pressure for more diversification in a company has so far mostly come from institutional investors, small and large investors also contribute to “the cultural perspective of public companies,” as Brown puts it. And it can certainly pay off for a company to gain the loyalty of younger investors. Because these companies could “enjoy relatively cheap and secure capital over a longer period of time – as seen with Tesla”.
In addition, the issue of stock gains – or the lack of them – could lose its weight as an argument in elections. While on the one hand it has often been argued that stock market profits only benefit a small, wealthy part of society, the other side can no longer take the praise for high returns alone.
What many Americans may not realize, however, is that whether they own stock or not, they are still dependent in part on movements in the stock market. After all, many bond funds depend on stock market developments. On the other hand, non-investors benefit from a positive market environment, as it usually leads to more jobs and higher wages, argues Brown.
And so, of all things, a pandemic could lead to social change in the stock market and with it politics and companies. Although such a change has been underway for decades, the last few months seem to have given the development a significant boost. Because, according to Brown, it is the millennials who are now going into the workforce and bringing about “a new paradigm” of “aggressive stock participation by young people of all backgrounds, geared towards active trading of individual stocks”. And even if the amounts might still be small at the moment, the long-term effects on “markets, the economy and society” could be profound.
Martina Koehler / Editor finanzen.net
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