Hype or New Normal?

Is the new generation of investors here to stay?

Feb 15, 2022

Photo credit: Trade Republic

Neobrokers have successfully established themselves, especially among young people, by scoring with lower costs, simplified onboarding, and better user experience.

Who uses neobrokers? What motivates investors today? And how do they invest? The German Institute for Economic Research Econ (DIW Econ) conducted a study to answer these questions. The institute studied the responses of over 200,000 Trade Republic users and analyzed their actual investment data.

As a result, the world's largest survey-based and representative study on the behavior of private investors, called: "Hype or New Normal? Insights into the motives and behavior of a new generation of investors", has been published.

The study shows that a new generation of investors has emerged that invests in the capital market to make long-term contributions to wealth accumulation and retirement planning.

47 percent of respondents stated that they are investing in the capital market for the first time. It is not surprising that this new generation of investors is younger: Around 70 percent of novice investors are under 35 years.

A key part of the analysis was to understand investors' motives for their investments in the capital market. While 72 percent of users invest to make a long-term contribution to their retirement plan, 77 percent of users invest because there is no other lucrative alternative to save.

These statements are supported by their portfolio structure where around 85 percent of capital assets are invested in stocks and ETFs. With first-time investors, it's almost 90 percent. Derivatives, which are riskier than equities and ETFs due to leverage, account for only 2 percent of portfolios. With first-time investors, the number is even lower at only 1.2 percent.

In this fashion, first-time investors invest more often in diversified and less risky products. This is also supported by the results of the user survey, in which novice investors state that they are less willing to take on an increased risk for higher returns when compared to more experienced investors. In fact, more than 19 percent of experienced investors claim to have a high-risk tolerance, while less than 11 percent of novice investors do so.

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

The results of the study contribute to the debate that especially young people invest their money blindly, with a high risk of losing it.

Please read the full study here.

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