Wealth Building for Rookie Traders
After unprecedented ROIs in 2021, new traders might not be too happy with their portfolios. As a financial advisor, here’s why you should care.
Rookie Investors versus Seasoned Investors
They used to say a good ol’ cup of joe will wake you up in the morning – nowadays, you just have to take a look at your portfolio. A downturn in the market is not new for seasoned investors, but for rookie investors that hoped to see ROIs similar to 2021, they were sorely mistaken. Commission-free trades had led to nearly 10 million new brokerage accounts in 2021, and rookie investors experienced one of the greatest market highs in decades and were ready to invest more in 2022. According to a survey from Investing.com at the end of 2021, 86% of rookie investors planned to invest more money in their portfolio despite only 67% of them seeing profits. This is in contrast to seasoned investors who saw an 87% profit margin while maintaining lower optimism. Even more interesting is that 84% of rookie investors expected stocks to rise in 2022 as opposed to 75% of seasoned investors. So what does all this data mean? Rookie investors are optimistic but also more likely to take perceived risks in order to make large gains thereby fully embodying the phrase “high risk, high reward”.
Capturing the New Investor Segment
Young investors are increasingly experiencing anxiety when looking at their portfolios today. Some choose not to look at all for fear of what they’ll see. According to an article from WSJ (Market Slide Forces Rookie Traders to Grow Up Fast), one rookie investor was quoted saying, “Every time I open up that app, and the money I put in gets lower and lower and lower, I can’t help but wonder, ‘Oh, OK, this might not be the right move,’” The anxiety and fear that people are experiencing has its impact on the market and is all the more reason for financial advisors to capture this customer segment. Right now is the perfect time for advisors to assuage concerns of the younger demographic and advise them towards the right places to stash their cash.
Factors like social media have inundated young investors with high-risk advice making it difficult for advisors to swiftly capture the segment. Furthermore, robo-advisors continue to gain popularity. So how can advisors create more impact with their clients and capture new clients? By leveraging digital technology to its full potential. Intuitive solutions for a group of tech-savvy clients is the way forward, and while it may make your job easier, it does not make your job obsolete. Having personalized and customizable information in an easily digestible format not only educates clients, but it personalizes the practice.
Opportunity Area for RIAs
An average of 18.5 million new trading accounts have been opened in the last 2 years. The key takeaway for financial advisors is the opportunity to provide sound advice to younger generations who are investing more capital into the market. Making financial advice more equitable to younger generations who lack a high net worth will create deeper relationships with clients and lead to a more financially responsible future.