Why COVID put investing on the public agenda

The coro­n­avirus pan­dem­ic caused some well doc­u­ment­ed and pre­vi­ous­ly unimag­in­able con­se­quences to the nation’s men­tal, phys­i­cal and finan­cial health.

Yet, while dai­ly news head­lines often ref­er­enced those in finan­cial hard­ship dur­ing the out­break, there were many in soci­ety who were able to improve their dis­pos­able wealth.

Fig­ures released by YouGov at the end of March 2021 revealed that around a third (32 per cent) of peo­ple in the UK had actu­al­ly man­aged to grow their sav­ings dur­ing the pan­dem­ic. 

How­ev­er, the inter­est rates on sav­ings accounts have remained low and peo­ple are now explor­ing oth­er places to put their mon­ey, accord­ing to Simon Crookall, a for­mer bond trad­er who found­ed retail site InvestEngine in 2019.

“The surge in sign-ups to trad­ing apps dur­ing the pan­dem­ic has shown that peo­ple are pre­pared to put their mon­ey in the stock mar­ket even in a time of uncer­tain­ty,” he says. “For those who don’t need to keep this cash on hand, or plan to spend it, invest­ment could cer­tain­ly be worth con­sid­er­ing.”

Exploring opportunities in trading

Giv­en the low inter­est rate envi­ron­ment and the volatil­i­ty in stocks through­out the cri­sis, investors have been keen to explore oppor­tu­ni­ties, accord­ing to experts at the var­i­ous retail bro­ker­ages. 

“By caus­ing sig­nif­i­cant fluc­tu­a­tions on the stock mar­ket, COVID has put invest­ing on the pub­lic agen­da,” says Anna-Sophie Hartvigsen, co-founder and part­ner of Female Invest.

“As a result, peo­ple are join­ing the stock mar­ket at unprece­dent­ed rates, hop­ing to get in at the right time. This can be seen as an expres­sion of an increased risk appetite, where investors are will­ing to gam­ble for short-term gains.”

For many, the pan­dem­ic has rede­fined how they think about invest­ing. The sig­nif­i­cant stim­u­lus mea­sures from gov­ern­ments around the world shaped the per­for­mance of equi­ty mar­kets. It meant a whole host of indi­vid­ual sec­tors and stocks returned dou­ble-dig­it returns in a mat­ter of days, some­thing investors pre­vi­ous­ly wait­ed months, or even years, to see before the pan­dem­ic.

“The rapid bounce back from COVID lows inspired by sig­nif­i­cant stim­u­lus and sup­port rein­forced the mes­sage that ‘bad news is often good news’ for the mar­kets and that cor­rec­tions or dips are to be bought,” explains Charles White-Thom­son, chief exec­u­tive at Saxo Mar­kets.

Beyond short term

Joshua Maho­ny, senior mar­ket ana­lyst at IG Mar­kets, acknowl­edges the oppor­tu­ni­ties mar­ket cor­rec­tions have afford­ed dur­ing the pan­dem­ic, but explains that while the ini­tial March-April capit­u­la­tion in stocks and ener­gy mar­kets led to some short-ter­mist activ­i­ty, the trends since have been more drawn out, allow­ing traders to hold on to posi­tions for longer.

“Glob­al lock­downs pro­vid­ed the basis for huge tech gains, which have only recent­ly start­ed to lose some momen­tum,” he says. 

“Nev­er­the­less, each trad­er will take their own approach and while one will see a trend and want to ride it for weeks at a time, anoth­er may spot spe­cif­ic entry oppor­tu­ni­ties that may last hours.”

For younger con­sumers, the frus­tra­tions of slow income growth cou­pled with a long-term low inter­est rate envi­ron­ment is like­ly to mean a greater will­ing­ness to explore what retail trad­ing plat­forms have to offer.

In addi­tion, sub­stan­tial inno­va­tion in the retail trad­ing mar­ket over the past decade has made it eas­i­er to trade through apps, to use ewal­let ser­vices and explore emerg­ing asset class­es such as cryp­to cur­ren­cies. 

“A lack of access to pedi­gree pri­vate invest­ments has pushed young investors into high-risk assets where there’s still upside growth poten­tial,” says Josh Green­wald, chief risk offi­cer at Uphold. 

IG’s Mahoney agrees, explain­ing that the mar­ket “col­lapse” wit­nessed dur­ing the pan­dem­ic brought in a new crop of traders.

“Huge inter­est from younger traders seek­ing to take advan­tage of rock-bot­tom prices also brings a dif­fer­ent risk-pro­file and invest­ing atti­tude,” he says. “While the new gen­er­a­tion of traders will often be more open to risk, that approach can per­haps shift as they move along their jour­ney and take a more strate­gic approach to trad­ing and invest­ing.”

Monitoring risk

Some mar­ket observers at the Finan­cial Con­duct Author­i­ty (FCA) will indeed be hop­ing this is the case. In March 2021, the reg­u­la­tor issued a pub­lic notice warn­ing that young peo­ple were invest­ing in high-risk prod­ucts that may not be suit­able for them.

“We want to make sure we encour­age the abil­i­ty to save and invest for life­time events, par­tic­u­lar­ly for younger gen­er­a­tions, but it is imper­a­tive con­sumers do so with sav­ings and invest­ment prod­ucts that have a suit­able lev­el of risk for their needs,” says Shel­don Mills, exec­u­tive direc­tor of con­sumers and com­pe­ti­tion at the FCA. 

“Investors need to be mind­ful of their over­all risk appetite, diver­si­fy­ing their invest­ments and only invest­ing mon­ey they can afford to lose in high-risk prod­ucts.”

It is clear the shift­ing pro­file of retail traders is of inter­est to the reg­u­la­tor, but their age pro­file isn’t the only issue being mon­i­tored. 

The recent spike in pre­vi­ous­ly out-of-favour stocks such as US retail­er GameStop and tech firm Black­Ber­ry led to the reg­u­la­tor warn­ing traders about the dan­gers of high-risk trad­ing based on social media sen­ti­ment alone. Despite this, the media atten­tion these events attract­ed fuelled inter­est fur­ther. Since then a host of com­pa­nies have come for­ward to warn their own cus­tomers of trad­ing with­out suf­fi­cient infor­ma­tion.

“This is a risky approach to invest­ing,” says Crookall of InvestEngine. “We’d urge peo­ple tempt­ed by such oppor­tu­ni­ties to con­sid­er their own sit­u­a­tion and build diver­si­fied, long-term port­fo­lios. Many peo­ple need more guid­ance on risk, rather than just div­ing head­long into what can be very chop­py waters.”