Did GameStop Happen Because of COVID-19? How 2020 Sparked a Retail Investing Craze

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Markets kept everyone on their toes in 2020, and investing trends shifted just as quickly as investor emotions, according to an Ally Invest digital conference today.

See: How the Pandemic Is Controlling Our Finances and Other Things We Learned in 2020 Studies
Find: Essential Money Tips for Surviving the ‘Pandemic Spiral’

One of the most striking phenomena of 2020 is that retail investors became more savvy and more self-educated during the pandemic, Ally Invest panelists said today. And one of the best lessons of 2020 is that it widened the engagement level of investing. “There was a drive to action led by events,” said Investopedia’s Dr. John Roberts, an Ally panelist at the Elevate Your Financial Future conference.

With a slew of constant enormous events, from the first U.S. COVID case to the passage of the CARES Act, and from Bitcoin crossing $40,000 to the authorization of vaccines, markets were very volatile in 2020.

These various events triggered changes in investing behavior. In a “normal year,” searches are rather predictable and gravitate around items such as pensions, investing, trading tax planning, rollovers, Roberts said. But last year, searches included “buying the dip,” which was the phrase of the year, according to Investopedia’s Alexandra Kerr.

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According to an Investopedia survey, from February to March 2020, 66% of investors changed their investments, as there was “a lot of commotion in the markets,” he said.

While there was a rise in new and existing investors in 2020, things were different than they were in the 2008 financial crisis. Unlike 2008, the 2020 pandemic leveled out the playing field between institutional and retail investors, resulting in retail investors behaving like “smart money.”

“There was an element of investor savvy that grew out of the pandemic,” said Ally Invest’s Lule Demmissie.

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Indeed, a live question during the panel showed 71% of people traded more in the last year. Another live question during the panel asking who/what was most influential in your financial journey in 2020, showed that 77% of respondents said their own research, 17% answered social media and 6% said TV commentators.

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A majority of people said 2008 impacted the way they handled 2020, said Investopedia’s Alexandra Kerr, adding that in turn, it gave rise to a new generation of retail investors who do the research and self-educate.

This once in a lifetime investing opportunity changed the retail trading landscape, encouraging investors to take control of their finances and giving them a sense of ownership for their future and retirement. Panelists added that this trend will continue in 2021.

See: How to Protect Your Retirement Savings During the Coronavirus Pandemic
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As we get to a more stable place, when the economy re-opens, there will be no changes in the rise in investing, Roberts said. “People are more comfortable with it, they started and financial literacy has taken a step up,” he said.

Investors are not simply dealing with having investments such as 401(k)s or IRAs anymore; they became more engaged online.

Panelists also noted that last year, there were no trading patterns, per se. Trading was more based on headlines and political trends, such as lockdowns.

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See: 13 Investing Rules You Should Break During the Pandemic
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That also leveled the playing field as retail investors realized that trading was not a mysterious undertaking and there was no need to understand complex fundamentals underpinning a stock or an exchange-traded fund. This translated into bets on airline and cruise stocks, for example, or a “beer and video games basket” in the spring of last year and in tech later in the year.

There was a smarter version of navigating this volatility then what we were expecting, Kerr said, adding that investors understood they had to adapt very quickly, hence dispelling the myth of retail investors being “dumb money.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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