June 23, 2024

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The short-lived memestock revival shows how retail investors and markets still misunderstand each other

2 min read

In the week of May 13 to 17, the shares of GameStop, AMC, BlackBerry, and other companies soared and then plummeted—all fueled by Keith Gill, known online as Roaring Kitty. The finance influencer who was at the heart of the 2021 memestock frenzy posted on X (previously known as Twitter) for the first time in years. The online community, r/wallstreetbets, via Reddit, became active again with individuals posting their returns (and subsequent losses). In the 48 hours following Roaring Kitty’s tweet, the trading volume in GameStop was significantly above average.

Despite its impact on certain areas of the market, this type of investing represents just one small faction of all retail investors. In fact, only about 14% of retail investors are investing because they are looking to outperform the market.

Fortunately, far more retail investors are most motivated by the goals of saving for retirement, future generations, emergency funds, or significant investments such as education or buying a home. For example, 48% of retail investors invest with the goal of saving enough money to retire and 43% invest to build wealth for themselves and their descendants.

For retail investors, it’s reasonable that figuring out the right strategy to reach these goals can be difficult. An influx of information from social media, peers, and financial services can add to the noise.

A much-needed revolution

Today, there’s a significant opportunity for policymakers and financial institutions to step up and better support retail investors.

A revolution in financial education is needed globally. Research by the Global Financial Literacy Excellence Center shows that less than half of adults in the U.S. are financially literate, with financial literacy rates even lower among Gen Z—this is far too low.

Only 48% of investors use a financial advisor. Professional and institutional investors (i.e. the very hedge funds that the meme stock movement sees as a foe) have…

Meagan Andrews, Hallie Spear

2024-05-27 13:33:11

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