A Surprising Number of Americans Started Investing for the First Time in 2020
by Christy Bieber | Published on Oct. 14, 2021
Has the pandemic been a catalyst for a brighter financial future?
The year 2020 was difficult for most Americans because of the novel coronavirus and resulting lockdowns. But despite the challenges, there's one small bit of good news that came out of 2020: Many people began investing money for the first time.
A pandemic may not seem like an ideal situation to begin investing for the future. But a recent CNBC/Momentive Invest in You survey shows 26% of the general public began investing in 2020. In fact, 60% of young investors (18 to 34 years old) first started investing in 2020 or later, as did 44% of Black men, 47% of Black women, 41% of Hispanic men, and 41% of Hispanic women who are investing.
Why did so many people begin investing in 2020?
According to the same survey, the most popular reason people started investing last year was because they wanted to better plan for the future. Here are the main reasons new investors gave for jumping into investing:
- To plan for the future: 35%
- Advice and encouragement from friends and family: 19%
- Recently learned how to invest: 16%
- Had extra money from pandemic relief: 10%
- Growth of cryptocurrency: 10% (perhaps because of the attention virtual coins get on social media)
How to start investing wisely
It's great news that so many people have begun building a more secure future by investing. But it's also important for new investors to make wise use of their money by choosing a diverse mix of investments that expose them to a reasonable level of risk.
Here are some of the best steps to take when getting started investing for the first time.
- Find the right brokerage firm. Fees, educational resources, and asset options vary among firms. Look for one offering minimal costs, an easy-to-use trading platform, investor education, and a good mix of low-fee investment options, including exchange traded funds (ETFs).
- Develop an investment strategy. It's important to know how you're going to invest your money. This could involve picking individual stocks, or you could take a simpler approach and use ETFs or mutual funds that pool your money with other investors and buy you a small share in many stocks. This is designed to mimic the performance of financial indexes.
- Understand your risk tolerance. Investing always carries some risk of loss, but you need to make an informed choice about how much risk to take given your age and goals. Crypto investments, for example, are much riskier than putting money into ETFs or even individual stocks, so make sure you understand the pros and cons.
- Build a diversified portfolio. To limit risk, you'll want a portfolio with a mix of different assets.
If you're a new investor, you may have already taken these steps and begun to reap the rewards of investing. But if you haven't started yet, check out our list of the best stock brokers for beginners and consider joining the millions of Americans who are already investing -- and get the ball rolling on putting your money to work for you.
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