The new generation of investors? Save in a diversified way

La nuova generazione di investitori? Risparmia in modo diversificato e con successo thumbnail

Who Uses Neobrokers? What motivates investors today? And how do they invest? All questions to which the German Institute for Economic Research Econ (DIW Econ) responded in the new study entitled “Hype or New Normal? Insights into the motivations and behaviors of a new generation of investors “.

The institute evaluated the responses of over 200,000 Trade Republic users (!) And analyzed their actual investment data. What came out of it? The world’s largest representative survey of retail investor behavior. The survey certifies that a new generation of investors has emerged who invest in the capital market to generate long-term economic security and supplement their retirement.

“Analyzing how young people react to the current situation of capital markets and negative interest rates is of central importance. Our research shows that a new generation of novice investors has emerged who invest a significant share of their private wealth in the capital market. It is particularly noteworthy that this generation invests in diversified products and with a view to long-term savings “, says Prof. Dr. Alexander Kritikos, economist and Senior Research Associate at DIW Econ. “This comprehensive study presents, for the first time, insights into the needs, goals and motivations of a new generation of investors.”

A new generation of investors: the details on the study and the statements “of the protagonists”

The study was conducted in the summer of 2021, so no later than eight months ago. Trade Republic has provided DIW Econ with full access to users’ investment data in anonymized form. In addition, a 15-minute survey was sent to all customers, to which more than 200,000 users responded. This has produced the largest data set on investment motives and private investor behavior globally. The study was commissioned by Trade Republic in order to independently and scientifically investigate why and how people today invest their money digitally.

“The analysis of the renowned independent research institute DIW Econ shows how urgent the problem of the pension gap is for many young people who invest a significant share of their private wealth in the capital market. It also clearly shows that these people are saving independently, well-informed and above all in the long term “, says Christian Hecker, co-founder of Trade Republic. “With this study we hope to contribute to the public debate. It is often said that especially young people invest their money blindly, with a high risk of losing it. The data collected clearly contrast this thesis “.

One of the most important findings of the study highlights that 47% of respondents say they are investing in the capital market for the first timeand unsurprisingly this new generation of investors is younger: around 70% of first-time investors are under the age of 35.

A key part of the analysis was understanding the motivations that drive users to invest in the capital market:

  • 72% of users invest to contribute to their retirement plan over the long term
  • 77% of users invest because there is no other profitable alternative to save

These claims are supported by their portfolio structure:

  • About 85% of the capital is invested in stocks and ETFs. For inexperienced investors it is almost 90%
  • Derivatives, which are riskier than stocks and ETFs due to leverage, represent only 2% of portfolios. For inexperienced investors, the number is even lower at just 1.2%

Beginning investors invest more often in diversified and less risky products. This is also supported by the results of the user survey, in which inexperienced investors say they are less willing to take more risk for higher returns than more experienced investors. In fact, more than 19% of experienced investors say they have high risk tolerance, while less than 11% of novice investors do.

This investment behavior results in sustainable returns. The average annualized return of Trade Republic users surveyed between January 2019 and April 2021 was over 7%. And there were learning effects: the average annual return increases to over 11% for users who have invested more than twelve months with Trade Republic.