Investors are attracting taxable accounts for retirement assets

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Despite the economic uncertainty caused by COVID-19, new and seasoned investors turned to online brokers in droves over the past year, according to the FINRA Investor Education Foundation and NORC at the University of Chicago. Most of these investors tried to save for retirement but used taxable accounts to do so, the organizations stated in a February paper, “Investing in 2020: New Accounts and the People Who Opened Them.”

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FINRA and NORC surveyed almost 1,300 households in October and November 2020. The respondents were selected from NORC’s AmeriSpeak panel.

According to the paper, 57 percent of those surveyed opened a new account in 2020. Of these, 66% had never opened a taxable account.

The new class of investors is younger and more diverse than seasoned investors. They also have lower incomes and smaller balances.

“Since investment accounts with and without a minimum are now widespread (for non-high-margin investors), the market entry barrier for private investors has fallen and enables better access than ever before,” says the paper.

In fact, being able to invest with a small amount of money was the main reason new investors entered the market (35%), followed by a desire to retire (27%) and find cheap stocks thanks to the slump in the US market (26%). Experienced investors said they could save for a goal other than retirement (25%), invest for retirement (22%), and invest small amounts of money (21%).

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When asked why they waited to open a new investment account until 2020, 17% of new investors said they wanted to save for retirement, as did 15% of seasoned investors.

Investors by Race

Asian (34%) and white (26%) investors cited retirement as the main reason for opening a new account over the past year. Latino / Latina (43%) and Black (35%) investors were drawn to their markets because they were able to invest with a small amount. Not wanting to miss the opportunity also inspired investors to enter the markets: Black investors, 27%; Asian investors, 23%; white investors, 22%; Latino / Latina investors, 17%.

Beyond these areas of consensus, investors had a chessboard of priorities when opening new accounts in 2020. Black investors were encouraged to enter the markets at the suggestion of a friend (26%) or family member (20%) and almost a quarter of Asian investors were drawn in with a sign-up bonus.

Investors by Age

Friends and family have a huge influence on the decisions of younger investors. Over half of investors between the ages of 18 and 29 said they would open a new account because a friend suggested it – significantly fewer followed the advice of a family member (31%). The power of persuasion lay with the financial advisors of older investors. Fifty-three percent of investors 60 years and older and 24 percent of investors between 45 and 59 years of age entered the market on the recommendation of an advisor. Only 22% of investors under the age of 44 took the advice of a professional.

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Investors by gender

Men reported higher balances on average than women. Thirty percent of men said they had at least $ 25,000 in their accounts, compared to 26 percent of women. Meanwhile, 23% of women said they had less than $ 500, compared with 15% of men. Women were also more likely to say they didn’t know or didn’t want to tell how much they had saved.


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