Coronavirus Lockdown Fuels Spike in DIY Investing
With time on their hands because of the restrictions imposed to control the coronavirus pandemic, there has been a huge increase in the number of people seeking to take control of their finances and open accounts with a whole range of DIY investing platforms and investment managers.
Investment platforms have seen a spike in applications since the market sell-off, as investors look to pick up shares that have tumbled on global markets and find safe havens for cash; such has been the pressure that some have been overwhelmed by the levels of demand with Halifax Share Dealing and iWeb both suspending new account openings.
‘investors look to pick up shares that have tumbled on global markets and find safe havens for cash’
March is traditionally a busy month for savings and investment accounts when ‘ISA season’ kicks in as investors seek to beat the tax year end.
However, recent activity far outstrips what would be expected as ‘normal’ seasonal uplift; DIY investing platform The Share Centre reported a 269% increase in brokerage account openings from March 9th to 30th, compared with 2019.
Ambitious UK broker interactive investor, reported a 119% per cent year on year increase in the number of ISA accounts in the six weeks to the end of March.
The number of self-invested personal pension (SIPP) accounts opened was also up almost 50% over the same period; interactive investor reported record trading volumes since mid-February, with Moira O’Neil, head of personal finance telling the FT:
‘Volatile markets could be a factor as people look for buying opportunities; it could also be that investors are looking for a secure home for their cash.’
Erstwhile Selftrade, recently re-branded as EQi with a smart new website, reported equally impressive growth.
Account openings in the month of March 2020 were up 221% versus March 2019; year to date, account openings are 129% better than 2019 up to end of March.
EQi’s trade volumes in March showed a 40% increase when compared with February, and a 75% increase year on year.
Vanguard UK reported a three-fold year on year increase in the number of new accounts opened in the first quarter of 2020; the company has doubled its customer base in the past year, and aggressively targeted the SIPP market. The company’s senior investment adviser James Norton said: ‘The price correction in the equity market is one factor. Whether you describe it as buying into the dip or cheaper equity valuations, all of those are indicators that now is a better time to invest,’
Mr Norton added that advances in technology have also fuelled the rise of DIY investing as it is easier than ever to open an investment account from a mobile phone with a relatively small sum of money, and a growing number of platforms to choose from. However, he acknowledged that many of these new investors may experience short term losses as the extent of the economic havoc caused by the pandemic becomes clear.
‘it is easier than ever to open an investment account from a mobile phone with a relatively small sum of money’
The recent surge in DIY investing appears to be no fluke as brokers and platforms that have long trumpeted their ambition to ‘democratise investing’ have put their money where their mouth is and embarked upon extensive marketing campaigns – both digital and traditional – in a concerted attempt to engage the next generation of investors.
Having attracted considerable criticism in the fallout from the Woodford scandal Hargreaves Lansdown, the UK’s largest DIY investing platform, dusted itself down and let fly with an impressive campaign that included TV, radio and print media; timed to coincide with ISA season Hargreaves’ focus was away from their traditional, generally more sophisticated client base, instead inviting ‘Mrs Evans’ to ‘Switch Your Money On’, with the promise to refund her fees if she was anything less than delighted.
Hargreaves Lansdown did not reveal details of account openings, but told the FT that more young investors had signed up than usual as the cost of entering the market fell; the company’s Danny Cox said: ‘We have seen elevated demand for new savings and investment accounts, with a slightly younger profile than we would normally expect.’
‘elevated demand for new savings and investment accounts, with a slightly younger profile than we would normally expect’
The fact that younger investors are being attracted could in part be due to historically low market valuations; today the FTSE 250 is at levels it last hit in 2013, which means it could represent good value for an investor with a long time horizon.
interactive investor also reported rapid account growth led by younger investors; 40% of accounts opened in the month to mid-March were by users under the age of 34, compared with 18% in 2019. Account openings among older age groups fell slightly, although ISA subscriptions from 30-44 year-olds were up 30%.
Online wealth manager, Netwealth, reported a 90% year on year increase in the number of accounts it opened in Q1 2020; chief exec, Charlotte Ransom, said this performance was all the more remarkable on the basis that Q1 2019 had seen rapid growth in account opening as optimism increased following the sell-off in late 2018.
‘trading volumes of roughly double what it would expect in normal market conditions with a 70/30 split in favour of buys’
Ms Ransom said that people tend to buy in when there is the expectation that the market will go up, but said: ‘It’s quite surprising to see this level of interest; there’s an understanding that it is very difficult to time. Very few people are convinced that this is the bottom; even if we haven’t yet seen the full capitulation, there is clear long-term value accumulation for investments.’
Existing investors managing their own ISAs and SIPPs on DIY platforms had been sitting on higher cash positions than normal before the coronavirus crisis began, as global markets hit all-time highs; those that retreated because of high valuations now have to decide when to rejoin the fray.
There is evidence that DIY investors are ready to buy back in; AJ Bell is reporting trading volumes of roughly double what it would expect in normal market conditions with a 70/30 split in favour of buys.
This figure would support the theory that DIY investors are adhering to received wisdom as to how best to respond to current circumstances by taking a range of small positions in companies or funds they consider to have been oversold; this may not be for the feint hearted, but attempting to time the bottom of a market dip is notoriously difficult, and a recovery when it comes could be rapid.
DIY Investor was conceived in the belief that financial self-reliance will become the norm as state provision of, for example, later life care or income in retirement becomes more uncertain.
‘the only way to achieve any degree of certainty is to take personal financial control’
Whereas the ‘401k/fifty-nine-and-a-half’ conversation has long been a staple around US dinner tables, the UK has lagged in terms of levels of financial literacy and engagement because there has always been a safety net.
However, with the pressures brought to bear by tuition fees, the cost of accommodation, squeezed wages, the ending of final salary schemes and uncertainty over healthcare and pensions, there is a dawning realisation that the only way to achieve any degree of certainty is to take personal financial control.
The transition from being a spender to a saver, and ultimately an investor may not always be comfortable; where instant gratification is replaced by a long term commitment to achieving goals that may be decades away, an understandable response may be that of disappointment or chagrin.
And then, wallop, along comes COVID-19, and it feels as though things will never be the same again.
The DIY investors that contact us regularly identify the single most important factor for them is the feeling that they are in control; DIY Investor exists to provide access to good financial education and information to allow people to make informed decisions that will affect the future quality of their lives.
‘the shift toward DIY investing has just massively accelerated’
The immediate response to the current extraordinary circumstances suggests that the shift toward DIY investing has just massively accelerated.
For those embarking on their journey to financial independence, never has there been greater choice in terms of the range of platforms that are available, nor more support in terms of the tools and content available to help you make informed investment decisions. See some automated solutions here.
Ideally you will invest as much as you can, for as long as possible, and take maximum benefit from the ‘miracle’ of compound interest; however, you can only start from where you are and doing something over a period, rarely delivers an inferior outcome to doing nothing, ever.
Whatever your current level of knowledge or experience, however hands-on, or otherwise you want to be, there will be a platform ideally suited to help you achieve your financial life-goals; Do it Yourself, Do it With me, Do it For me – just don’t do nothing!