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Social and financial factors are the driving forces behind retail investor decisions to start investing, according to ASIC retail investor research. This is part three of Stockhead’s coverage on the extensive retail investor research which surveyed 1,053 Australian retail investors aged 18 and over who had directly traded in securities, derivatives or cryptocurrencies at least once since March 2020.
Conducted in November 2021, the report was prepared by SEC Newgate in close consultation with ASIC. Despite changes to economic conditions with rising inflation and subsequent interest rate hikes since the research was conducted, ASIC said retail investor activity remained elevated in 2022 compared to pre-pandemic levels.
Multiple factors influenced retail investor decisions to first start investing, with the most common family or friends at 27%, wanting to generate another income stream at 26% and wanting financial independence at 23%.
There were few significant differences by years of investing experience, gender or age, with the most commonly selected factors holding true for all key groups.
However, there were differences by age among the less common factors. Investors aged 55 and over were more likely to select ‘I didn’t want to rely on superannuation/pension for retirement’ (16% compared to 8% of those aged 18–34 and 11% of those aged 35–54).
Investors aged 55 and over were also less likely to indicate ‘I wanted to make some quick money’ (9% compared to 16% of those aged 18–34 and 17% of those aged 35–54).
Some recent investors indicated that Covid-19 was a factor influencing their decision to start investing, either because they ‘had extra time to research and invest’ (13%) or because they ‘had extra money to invest due to Covid-19’ (11%).
While eight in 10 investors said they do research before making an investment decision, it was not uncommon to invest because friends were doing so or because they didn’t want to miss out.
Overall, eight in 10 investors (80%) agreed with the statement ‘I do research before making an investment decision’ and seven in 10 (72%) agreed that ‘I only invest as much as I’m prepared to lose’.
However, half of all investors (50%) agreed that ‘I’ve invested in things because I don’t want to miss out’ and over a third (36%) agreed that ‘I’ve invested in things because my friends were doing so’.
Recent investors were more likely to report the FOMO effect than the most experienced investors.
Australian shares were the most common financial product investors started investing in, at 52%, particularly for the most experienced investors who started investing five or more years ago, where the result was 72%.
Cryptocurrencies was the second most commonly chosen product as a first investment at 19%, with 28% of recent investors and 20% of moderately experienced investors likely to say that this was their first investment compared to just 3% of the most experienced investors.
Investors reported a range of emotions when investing, including selling, buying and researching investment options. These emotions were positive, such as ‘hopeful’ (38%), ‘motivated’ (29%), and ‘excited’ (28%). Only one negative emotion made the top 10 – ‘anxious’, which 17% reported feeling.
Investors used a range of terms to describe their approach toward investing but the research found these appeared inconsistent with, or varied for, different parts of their portfolio.
Overall, investors selected a range of different terms to describe their current approach, with three terms selected on average.
The most common terms investors chose were ‘in it for the long-term’ (30%), ‘safe’ (26%), ‘balanced’ (24%) and ‘planned’ (20%). Other common terms chosen were ‘set and forget’ (18%), ‘strategic’ (18%), ‘active’ (18%), and ‘calculated’ (18%). Approaches such as ‘day-trader’ (7%), ‘reactive’ (6%) and ‘obsessed’ (4%) were selected by few investors overall.
Investors who held five or more asset classes in their portfolio were more likely than investors who held fewer product types to select ‘active’ (37% compared to 14%), ‘planned’ (36% compared to 17%), ‘well-diversified’ (33% compared to 14%), ‘strategic’ (30% compared to 16%), ‘calculated’ (27% compared to 16%) and ‘research-led’ (23% compared to 12%), but were also more likely to indicate that they were ‘obsessed’ (12% compared to 3%) and ‘risk-taking’ (24% compared to 13%).
Only one in five cryptocurrency owners (20%) considered their investment approach to be ‘risk-taking’. Investors that held only cryptocurrency were just as likely to consider that they were ‘risk-taking’ (19%) as investors that held cryptocurrency in combination with other product types (21%). One in 10 investors that held only cryptocurrency considered their investment approach to be ‘safe’ (11%) and ‘balanced’ (11%).
One in five investors or 19% overall and 17% of investors who only owned cryptocurrency, said they owned products they considered risky or speculative.
Around half of investors (49%) described their attitude to risk as ‘I prefer stable, reliable returns’, with 20% describing their attitude as ‘I prefer guaranteed returns’ .
But 31% indicated they were more risk tolerant with 22% describing their attitude as ‘I’d accept moderate variability in returns’, and 9% describing their attitude as ‘I’d accept higher variability with the potential for greater returns’.
Most experienced investors were less likely to describe their attitude to financial and investment risk as ‘I prefer guaranteed returns’ (14%), compared to moderately experienced investors (23%) and recent investors (23%).
Overall, one in five investors (19%) said they owned assets considered risky or speculative. Moderately experienced investors (27%) were more likely to say they owned risky or speculative investments compared to 16% of the most experienced investors and 18% of recent investors.
One in three cryptocurrency owners (34%) considered that they owned products that were risky or speculative, and those who only owned cryptocurrency were even less likely to consider that they owned risky or speculative products (17% compared to 40% of those who held cryptocurrency in combination with other products).
Investors who reported that they held products in their portfolio considered risky or speculative were asked to name the product, with cryptocurrencies being the most commonly mentioned product by this group (73%, representing 14% of the total sample).
More than four in 10 investors said they had experienced ’realised losses’ (selling the investment for less than they bought it for or losing the money invested completely) for the following product types:
Around three in 10 investors who owned or traded CFDs (31%), warrants (28%) or Australian shares (27%) had experienced ’unrealised losses’ (a decline in investment value). The products where investors were more likely to select ‘none of these’ types of loss were gold or silver (44%) and exchange traded funds (ETFs) (40%).
Banking trading platforms were the most commonly used by investors, but a wide range of trading platforms were reportedly also used by investors including cryptocurrency exchanges.
On average, three ‘main’ sources were used by investors seeking investment information with the main including:
The most experienced investors were more likely to report accessing investment information from financial-focused sources.
When asked to name any Australian financial regulators they had heard of, more than half of investors or 55% indicated they did not know any. One-third of investors (33%) were able to correctly name at least one Australian financial regulator such as ASIC, APRA, RBA, ACCC, Treasury, ATO, AUSTRAC, or CFR.
Fortunately, fewer investors had experienced what they felt was a ‘concerning issue’ when investing or doing a trade, such as a scam or frozen funds.
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