For those of us fortunate enough to be spared serious illness or loss, the early years of the pandemic meant we suddenly had more time at home on our hands.
Some of us used it to do productive things to feel like we had a semblance of control over the situation like baking banana bread that no one wanted to eat. Others started investing in stocks aided by the dual advent of working from home and the rise of accessible brokerage apps with low fees.
Amateur investors could monitor markets and execute trades with minimum resistance on their own time. The fantasy of making millions scrolling securities on your phone while watching Tiger King proved to be a powerful one.
The Central Bank of Ireland warned retail investors from the onset of the pandemic “that investing during periods of market volatility can mean increased risks for them and can lead to loss of their money”.
According to MiFID investment firm data analysed by the Central Bank, in the short time between December 2019 and April 2020 the average number of retail accounts opened jumped a whopping 116 per cent. In 2021, Schwarb said 15 per cent of American investors had only started in the previous 12 months, dubbing the millennial-heavy cohort Generation Investor (Gen I).
Then meme stocks entered the chat.
Trading information on Discord servers and the now infamous Wall Street Bets subreddit, gave rise to retail investors buying what they perceived to be undervalued stocks, pumping up the price by getting others to buy in and then cashing out at critical mass.
The Game Stop episode saw some hedge funds lose billions thanks to a successful short squeeze instigated on an internet forum where profits were referred to as “chicken tendies”.
Some traditional institutions had figured the video game retailer would collapse in the pandemic against online giant Amazon and started shorting the stock.
Retail traders decided to buy the stock to encourage the price to rise, attracting other buyers and eventually causing the price to surge again as exposed funds tried to cover their short position.
[ High levels of trading could augur well for stocksOpens in new window ]
In December 2020, GME shares closed at $3.33, by late January 2021 they had hit $438.
Even those not caught up in the adrenaline of high-risk meme stock trading were buoyed by the solid returns of diversified portfolios thanks to the S&P 500 being up 26.9 per cent and the Nasdaq Composite gaining 21.4 per cent respectively.
Then, in 2022, Wall Street had its worst year since 2008, thanks to a multitude of factors including the invasion of Ukraine, rising interest rates, soaring inflation and the ongoing Covid-19 crisis in China.
The Wall Street Journal reported that by the start of 2023 the average individual investor’s portfolio had declined 27 per cent since peaking in December 2021.
Meanwhile, reports began filtering in of stock market wunderkinds being wiped out in faltering markets.
Alexander Hurst’s excruciatingly honest account of “How I turned $15,000 into $1.2 million during the pandemic – then lost it all” in the Guardian likened his trading to a gambling addiction, his desperate attempts to “win it all back” landing him with a substantial tax debt.
So where does this leave the Irish members of Generation Invest who jumped into the markets in the pandemic, excited by early success?
They seem to be taking it on the chin. Perhaps because none of them saw it as a reason to quit their day jobs.
Younger members viewed investing in securities as an additional means of income to help them achieve a life goal like buying a new car or building a deposit on a first home.
Meanwhile older investors used their portfolios as a pension supplement instead of buying an investment property because “insane prices” and “rising interest rates” coupled with tax make it “hardly worth the stress”.
Adrian (who didn’t want his surname used in this article) was encouraged by the 30 per cent gains he made on the “about €300 deposited” in August 2020. “Then 12 months ago I decided to put 10 grand in. Awful timing,” he conceded.
[ Stock markets edge higher after upbeat corporate earningsOpens in new window ]
“There was more thought to it than that though. We had just got a new car on PCP finance and the thinking was that if we made that investment, by the time the PCP contract was up, we might have a good chunk of the final payment earned. Also, the money was there, we could afford to lose it, and we weren’t earning anything in the bank.”
Millennial investor Niall (who also preferred to only use his first name) entered the market for a similar reason. “The interest on my personal savings was nothing,” he said.
When his plans to move to the United States were scrambled by the pandemic, Niall decided that the funds he had saved up would be put to better use by investing than sitting idle in his account. “I invested in some airlines who had got hammered because of Covid and, reluctantly to say, oil companies as they also got hammered. The aim is probably to use the funds for a house deposit in the future as long as it doesn’t disappear.”
He has taken the “dip days” in his stride.
“I guess the aim is to not get sucked into the short-term mindset and look at it longer term, again easier said than done,” he said.
According to Niall, his only regret was holding on to his position in a data mining company.
“I bought the shares at roughly $9 a share, the share price hit a high of $41. I never sold, which would have been a fourfold return, it’s currently trading somewhere around where I bought it at now so yes that’s a regret and lesson I learned from,” he said.
His takeaway from the experience was to “have a price in mind you want to sell and stick to it, otherwise it’s just gambling”.
Online platforms like trading212, eToro, Robinhood and Revolut make it easier to monitor and buy securities with a click of a button.
Even traditional brokerages like Davy offer apps and platforms to individual investors to control their portfolio from a tablet.
For investors looking to enter the market, the key is to look at the fine print before opening an account.
A commission-free platform doesn’t necessarily mean “no fees” because brokerages still have plenty of other ways to extract cash from investors.
[ Should I stop investing in my pension for now, with markets down?Opens in new window ]
There are trading fees, which can include commissions, currency conversion fees when buying say a US stock from an EU currency account and spreads.
But investors also need to keep an eye out for non-trading fees like how much it costs you to withdraw from your account and inactivity fees.
EToro hits investors with a $10 fee every month their account remains untouched. Which could be a problem for people who like to “set and forget” investments for the long term.
Some traditional firms charge commissions of about 0.50 per cent on share and bond trades on execution-only accounts with additional fees. This could change the amount and frequency investors put into their portfolio.
Instead of putting in €50 every week, is the investor better off putting in a lump sum at the end of the month or every three months?
Aside from withdrawal fees, beginner investors need to be aware of the tax bill that might also eat into their precious gains.
As a general rule, investors are looking at a 33 per cent capital gains tax on net profits and may also be subject to a withholding tax on US investments.
Would-be Wolves Of Wall Street should get professional advice on taxation treaties, possible deductions and offsets.
According to research from the Motley Fool, Gen Z and millennial investors are more likely than previous generations to own stock options and cryptocurrency, but less likely to have a retirement account.
The rise of financial influencers on TikTok and Instagram could be both a symptom and a cause of young investors feeling more confident than their parents to invest, even when the going gets tough.
Simran Kaur from Girls That Invest demystifies finance jargon for her 300,000-strong audience made up of people long ignored by traditional investment gurus – young women, people of colour and working-class cohorts.
[ Finance officials mull pension fund amid review of ‘rainy day’ potOpens in new window ]
Kaur was frustrated that financial advice targeted at women was based around saving money instead of growing it through investments, which has the potential to add up to a lot more than that €500 a year scrimped from making coffee at home.
So she made a number one podcast with more than three million downloads and wrote a book about investing, which was released last year.
But does she still feel the same way about encouraging people into the markets in 2023?
Over the din of a hurricane in her native Auckland she explained she isn’t perturbed by the tumbles. “For seasoned investors there’s actually very little panic because we know that this is just a normal part of the cycle and you cannot have highs without a few lows,” she explained.
“However, something that really helps ease the nerves of new investors is looking at the previous patterns of the stock markets. Over the last 40 years, you can see that while there are ups and downs, it is a steady projecting-upwards trend.”
Investors seeking immediate windfalls are the ones most likely to get burned. “One of the biggest pitfalls is trying to make money quickly or falling for some sort of get-rich-quick schemes,” she said. “When something in investing seems too good to be true, it’s hard to step back and think logically and go, okay, if the stock market on average returns 7 per cent and this person or this company is saying that this is gonna give me 20 per cent, you know, is that realistic?”
Kaur advocates for a diversified portfolio and long-term growth.
Is now a good time to invest given the warnings on a global recession?
“People are worried, well what if it keeps dropping? And you know, you can never quite catch a falling knife, you never know when the share market reaches its bottom and it’s the best time to invest,” Kaur said.
She said long-term measures like dollar cost averaging help ride the dip by investors steadily putting in the same amount every month, which may let them buy more by taking advantage of the lower share prices.
“It’s like going into Boots and seeing the moisturiser that you wanted on sale. It’s the same product but now it’s just cheaper. So it is a good time to get started investing but a lot of people find it really hard to imagine when the recession will end because that’s long-term thinking and we always prefer getting money a bit faster than that,” she said.
But what about those of us who feel we can’t lock away or risk our scraped-together savings in investments at a time of financial insecurity?
“It is hard to invest when you have limited cash and I think it would be unfair to not touch on the cost-of-living crisis and how much of an impact that is having on people around the world,” said Kaur. “But at the same time, if you have disposable income, even if that is five quid a week, even if that is 10 quid a month, then you can absolutely start investing that if that is discretionary income because little bits absolutely add up, especially if you are a young person.”
Retail investors took a beating in 2022 but they may not be completely out of the count as long as they don’t expect to see returns any time soon.
