DIY Investing Loses Some Lockdown Momentum

One of the most heartening things to emerge from lockdown was that people with more time on their hands, and often more money in their pockets, engaged with their finances as never before; brokers and platforms reported accounts being opened in record numbers, particularly by young investors – writes Christian Leeming.

 
However, as lockdown restrictions eased investment platforms warned of big falls in volumes as the Covid trading storm apparently ran out of puff.

Commenting on the frenzied market activity, Warren Buffett said ‘The gambling impulse is very strong in people worldwide, and occasionally it gets an enormous shove’; the pandemic provided that shove and many newbies decided to give investing a try.

No doubt the ‘sage’ would have approved of those taking a long-term view and seeking more personal financial control; however, the legendary investor would no doubt have been less impressed by those seeking to get rich quick by timing markets wildly swinging about because of Covid-19.

Whether driven by boredom during lockdown or the shift to working from home, with spare cash and extra time to dabble in the markets, the result was a boon for trading and investment companies.

It was uncertain whether this surge in activity was another symptom of unusual times or whether there had been a permanent shift in the public’s attitude towards trading and investing; many platforms reported an increase in younger customers during the pandemic, suggesting that the demographic of retail investing is changing but there were concerns that social media was luring some to take risks they could not afford.
 

‘take the time to improve their financial knowledge and continue to ‘get rich slow’’

 
There are now very real signs that the lockdown boom is unlikely to last; FTSE 100-listed Hargreaves Lansdown, Britain’s biggest DIY investment platform, last month reported a slowdown in dealing volumes after the lifting of the government’s Covid lockdown restrictions and shares in CMC, another leading trading platform, lost more than a quarter of their value after the company warned that its annual net revenues would fall well short of expectations.

It is a similar story at interactive investor, which has been eyeing a stockmarket flotation after a period of rapid growth and acquisition; Chief executive Richard Wilson said: ‘We’ve seen a reduction in trading activity starting at the tail-end of the second quarter.’ Explaining that the company expected a reduction from the ‘extraordinary’ levels of activity in the Covid outbreak: ‘We’d never expected that to continue.’

High-risk derivatives such as contracts-for-difference and spread-bets that allow punters to speculate on the direction of financial markets are popular during market volatility, even though the loss rates are high. Companies such as CMC and its rivals IG Group and Plus500 benefited from the trading boom despite the fact that 67% of CMC’s retail customers lose money as do 70% of IG’s and 72% of Plus500’s.

With such levels of losses, it is likely that at least some who experimented with CFDs during the pandemic will have been put off, which will have a direct effect on the CFD and spread-betting platforms which make the rump of their money from transaction fees.

Platforms such as Hargreaves, Interactive Investor and AJ Bell are generally used by customers to buy and sell shares and funds and to manage ISAs and self-invested personal pensions (SIPPs) with a longer term investment horizon. As such the behaviour of such investors is generally less risky and hopefully fewer will throw in the towel and eschew the benefits of long term investing.

Financial regulators had been concerned about the levels of risk being adopted by some investors and are likely to be relieved if some of the heat is taken out of markets; there have been concerns about ‘gamification’ of younger investors, particularly in the US where this trend has been most pronounced in the so-called ‘meme stocks’ such as GameStop that gyrated wildly after being the focus of social media campaigns.

However, it instinctively feels hopeful that people who have used the pandemic as an opportunity to make long-term investments remain engaged with their personal finances and retirement planning.

Hargreaves attracted an additional 233,000 during the last year, taking its total to more than 1.6m, with an increase in younger investors opening ISAs during Covid.

Jason Hollands, MD at Tilney Investment Management, said it was: ‘positive to see a new generation taking an interest in investing.

‘Where I do have concerns is that for some, investing might be perceived as a get-rich-quick activity.’

With the increasing inevitability that people will have to take more personal financial control in the future, at DIY Investor we very much hope that the lockdown investing bonanza was not just a flash in the pan and that people will take the time to improve their financial knowledge and continue to ‘get rich slow’.