Retail investors are evolving fast from total novices into persons with a plan to succeed. Traditionally labelled as “dumb money,” retail investors are starting to show that this stamp is not valid. They are learning and rapidly turning into investors who can compete with the veterans of the financial markets, writes eToro analyst for Romania, Bogdan Maioreanu.
An article in Wall Street Journal is showing that retail investors have managed to beat the S&P 500 index since 2014, their portfolios returning over 150%, more than the index that gained only 136%. Even professional money managers often have a hard time beating their benchmarks. Over the past decade, about 86% of all large-cap U.S. equity funds have underperformed the S&P 500, according to S&P Dow Jones Indices. But one of the advantages of being a Retail investor is that you do not have to beat the benchmark every quarter and this gives you flexibility.
Investing is a process that for many investors started recently, half the investors at global level having less than five years experience according to the latest eToro Retail Investor Beat survey. But the survey showed that 78% of Romanian investors are falling into this category. Regardless of their experience, investors are having plans, and 48% of all investors surveyed are on track to achieve them while for 38% it is too early to say. Most confident that they will achieve their goals are the US investors with 63% followed by the Polish ones with 58% and the Australians with 57%. Only 39% of Romanian are on track of achieving their plans and 51% are declaring that is too early to say.
But not all investors have the same approach. At global level 35% are active investors – choosing and trading each asset in their portfolios, 34% have a passive approach – prefer pooled vehicles like ETFs and mutual funds – and 24% have a mixed approach. Among the 12 countries surveyed, Romania is the country with the largest number of active investors, 44% declaring that they are choosing this approach. It is followed by Italy with 43% and Spain – 42%. At the opposite end of the spectrum, the Netherlands has the largest percentage of passive investors – 46%, followed by Germany – 43%. Among Romanian investors, 31% favor the passive and 23% have a mixed approach.
Market conditions in the past 5 years managed to put most investors through all sorts of challenges. But the bear market in 2022 was a particularly rough experience for the investors that started this journey during the pandemic when markets recovered and went in a strong rally. In 2023 the optimism has returned to the markets, 88% of Romanian investors declaring that they expect their investments to generate profit this year, followed by 85% of the Polish investors, 78% of the Czechs and Spanish and 77% of the Germans. In fact, at global level, on average, 75% of investors are expecting to have a profitable 2023, according to the latest eToro Retail Investor Beat survey.
Prospect of recession jumps above inflation as chief concern for retail investors
