For years, retail investors were often dismissed as lacking the sophistication of institutional players on Wall Street. That perception is rapidly changing. Data indicates that individual investors are not only increasingly active in the market but are also demonstrating a knack for identifying opportunities and, crucially, outperforming professionally managed funds.
An analysis reveals that retail investors collectively surpassed the performance of two widely tracked index funds – the SPY (tracking the S&P 500) and the QQQ (tracking the Nasdaq 100) – in . This shift is underscored by the sheer volume of activity, with retail investors accounting for 5.4 trillion dollars in trading across stocks and exchange-traded funds (ETFs) last year, according to Vanda, a data and research firm. This represents a nearly 47% increase from the previous year and the highest level since at least .
“I personally want to dispel the myth of retail being dumb money, because it’s not dumb money anymore,” stated Joe Mazzola, head trading and derivatives strategist at Charles Schwab, during an investor event last . This sentiment reflects a broader recognition that the rise of mobile trading apps, zero-commission trading and online investment communities has empowered a new generation of self-directed investors.
The COVID-19 pandemic served as a catalyst, bringing a surge of new investors – many young and tech-savvy – into the market. The “meme stock” phenomenon, exemplified by the dramatic price increases of GameStop and AMC Entertainment, highlighted the potential for coordinated retail investor activity to disrupt traditional market dynamics. However, the impact extends beyond speculative frenzies.
Years of generally positive market returns have provided a favorable environment for individual investors. The S&P 500 has experienced annual losses in only three years since , creating a backdrop of sustained gains that encouraged broader participation. JPMorgan Chase reported that inflows from individual investors into the market reached their highest levels since by early , potentially driven by younger Americans seeking investment alternatives to homeownership.
money flowing into the market from individual investors jumped approximately 50% from to early , according to JPMorgan Chase. Steve Sosnick, chief strategist at Interactive Brokers, observed, “Markets used to be really dominated by institutional investors, but if you put enough ants together, they can move a very big log.”
Buying the Dip
Frank Sabia, a high school registrar from Encino, California, exemplifies this evolving investor profile. Starting in , Sabia actively expanded his market knowledge through online investor groups and educational seminars. He now independently researches and executes his own trades, focusing on options strategies.
Sabia’s experience illustrates the willingness of retail investors to capitalize on market downturns. In , following an unexpected announcement of tariffs by President Trump that triggered a more than 10% drop in the S&P 500, retail investors stepped in to buy, injecting over 5 billion dollars into the market over two days, according to Vanda. Mazzola noted, “In April, it was retail (investors) that bought the dip. They were the ones that were willing to step in front. They saw the opportunity.”
The AI Trade and Silver
This trend continued throughout , with retail trading activity reaching an all-time high on a rolling monthly basis in , according to J.P. Morgan. Retail traders also played a role in driving up the price of silver to record highs through increased investment in silver ETFs, as reported by Vanda.
An analysis by Charles Schwab of its retail investor clients’ trading activity in revealed net buying of stocks, with Microsoft, Netflix, and Tesla among the most popular choices.
Some Take on More Risk
The appetite for risk among retail investors is also evident in the growing popularity of options trading. Vanda data shows that options trading accounted for approximately 650 billion dollars of retail investors’ trading volume last year, with a generally upward trend since at least .
Noah Goodwin, a high school student, began trading options on Robinhood in early and quickly experienced both gains and losses. He profited from a strategic bet on Nvidia options but also incurred losses due to miscalculated volatility trades. Despite these setbacks, Goodwin’s experience highlights the willingness of some retail investors to engage in more complex and potentially higher-reward strategies.
Sosnick cautioned that the “buy the dip” strategy, while often profitable, can lead to trading decisions made without full consideration of the associated risks. “The risk to it is that for many of them it’s become sort of mechanical,” he said.
Balancing Short-Term and Long-Term Trading
Many retail investors adopt a balanced approach, combining short-term trading with long-term investment strategies. Andy Hu, a financial analyst in Los Angeles, allocates 50% of his portfolio to the SPDR S&P 500 ETF Trust for long-term growth and engages in micro-cap stock trading for short-term gains. He paused trading at the end of amid market uncertainty following a pullback in big tech companies.
The increasing influence of retail investors is reshaping the dynamics of Wall Street, challenging the traditional dominance of institutional players and demonstrating that, in today’s market, the collective actions of individual investors can have a significant and lasting impact.
