Investors who entered the market during the pandemic weren't 'short term risk-takers': Charles Schwab
Jonathan Craig, Charles Schwab Head of Investor Services, joins Yahoo Finance to discuss retail trading trends over the past year.
Video Transcript
JULIE HYMAN: Let's talk about the vehicle by which people were getting into these stocks. And of course, there were a number of options, but one of them was Charles Schwab. Now Schwab was among the first mainstream brokerage firms to drop its commission fee. That happened back of October of 2019. And then really we saw a lot of the other discount brokerage and online stock brokerages to follow suit.
Joining us now is Jonathan Craig. He's Head of Investor Services at Charles Schwab. Jonathan, thanks for being here. Jared's going to stick around as well. So talk to me about that point in time, right, which obviously preceded all of this action that we had this year. But do you think that was a real turning point in the industry? And how did it pave the way for what happened in early 2021?
JONATHAN CRAIG: Sure, and first, thanks Julie, for having me. It is such an exciting time, as you point out, for the retail investor. You know, I do think in many ways there were probably a couple of turning points. I think certainly the commission move we made in 2019, after which much of the rest of the industry followed, did remove a lot of cost friction from the equation. And probably not surprising, we have a 50-year history of reducing costs on behalf of investors, so this was the next logical decision.
I think it was a couple of other things. There's been so many digital innovations and other innovations that just make investing easier than ever. And then, of course, fractional trading has become a lot more prevalent. And I think it really probably is that combination of fractional trading, and being able to buy a slice of an individual position, removing the cost friction almost entirely, and just digital innovations, and mobile enhancements, that collectively has really helped lead to the rise of the retail investor. And then, of course, the pandemic gave people a little bit more time to engage with the markets.
JARED BLIKRE: And Jonathan, with trillions of retail investor dollars under management, I expect that you have a ground-floor view of what's going on in this space. And I've been asking this question to a number of guests in this theme, which is, how sticky are these retail customers? Because some of them, I would think, are maybe just fly-by-night. You know, they got-- they wanted a taste of the action. It wasn't for them. But are you seeing a significant number of new investors, new accounts in the space, maintaining not only their accounts but also some of their investment activity as well?
JONATHAN CRAIG: Sure, yeah, and I'm glad you asked that question. Because I think-- there's a lot of people, I think, have speculated that many folks who entered the market during the pandemic were maybe speculative, short-term risk-takers. And you know, in our data, at least the clients that have come to Schwab, that's not really what we've seen. And we did a really comprehensive study of individuals who entered-- became first time investors during the pandemic.
And you know, we found a couple of things. And maybe not surprisingly, most were younger. More than half were millennials or younger. They were actually, though, a mix. And some were buy-and-hold investors, about 56% buy-and-hold and 44% more trader-centric. They tended to be pretty optimistic, which is not surprising. Many of them opened accounts for pretty straightforward reasons. Some wanted a new source of income, some an emergency fund, and some were even thinking about retirement.
And maybe finally, they're a bit more, a bit self-directed, as you might expect, but also not purely self-directed. I think many-- from what we saw, many were looking for also help and advice, just on their terms when they want it. So I would say in our experience, certainly we've attracted many, many younger clients. Over half of our new clients are less than 40. But generally speaking, they do have a long term view and are looking for help.
JULIE HYMAN: Jonathan, there was sort of this conventional wisdom that a lot of the money that poured in the market was coming straight from the government, right? People were getting their stimulus checks, and they were opening a brokerage account. Have you really seen those openings slowed down though? Is that borne out by what you're seeing?
JONATHAN CRAIG: If you look at our metrics, as I said, over a million new accounts, even over the past several quarters, so it's not simply about government money coming to the market. I think it's a confluence of things. But we continue to see good numbers, strong numbers, certainly very elevated relative to pre-pandemic, not the Q1 mean stock numbers. But that was, I think, a unique time.
But again, our numbers remain elevated, and we do expect that to continue, I think largely because of the reasons I said, which is costs coming down materially, fractional capability, which is so important for first-time investors. And again, it's just never been easier to open an account and start investing. So I think for us, what we think a lot about is, is how do we give those new investors the tools, and the guidance, and the insights to be successful over the long term. We certainly believe investing should be fun, but it's not a game. And I think we see the difference.
JULIE HYMAN: Well hopefully these folks will do OK if we see some more rockiness in the market. Thank you so much for being here. Really appreciate it. Jonathan Craig is Charles Schwab Head of Investor Services. And of course, our own Jared Blikre offering his perspective as well.
