How Retail Investors Benefit From the Stock Market

Retail Investors have become a powerful force in the stock market. En masse, they can move companies with billion-dollar market caps.

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Thanks to social media and trading apps, nonprofessional investors can now participate in the financial world. This brings with it several benefits, like:

Freedom to Invest in Smaller Firms

Retail Investors are individuals investing in a company through their bank, brokerage firm or their own savings accounts such as their 401(k). They may purchase shares and debt in their own name or have an investment professional do it on their behalf. They typically invest smaller amounts less frequently than institutional investors.

Institutional Investors are companies, funds or other entities that move large blocks of stocks in the markets. They are responsible for a large percentage of the trades on the New York Stock Exchange and can have a strong influence on market movements.

Retail Investors can invest in any size of firm and do not have the constraints that some funds may have such as sector or size restrictions. This allows them to take a more hands on approach to their investments and can play the long game instead of being more concerned with daily or yearly returns. They also have more freedom to diversify their portfolios.

Access to Information

Individual retail investors, unlike institutional investors, trade in smaller quantities, and tend to buy and sell shares less frequently. As a result, they can have more of a direct impact on the stock price of an individual company.

In fact, as many as 15% of all new stock market investors in 2020 were retail, and this surge has been driven by mobile apps like Robinhood making investing easier and cheaper (you can thank meme stocks for that).

Retail investors are often very knowledgeable about your business and industry, particularly if you operate in an area they have domain expertise in. This is a major advantage, and one you can leverage to your benefit by communicating regularly with them. Provide them with informative articles, blogs, videos and webinars on your strategy and updates, as well as information on any regulatory changes that may affect you. Segmenting your retail investor base can help you tailor this communication to their needs and preferences, improving the effectiveness of your marketing efforts.

Lower Fees

Retail investors typically invest small amounts in individual stocks, mutual funds, exchange-traded funds (ETFs), and other securities. Usually, these investments are motivated by personal financial goals such as retirement, future educational needs, or financing a large purchase.

Retail Investors are generally able to focus on the long-term, making them less susceptible to behavioral and emotional errors that can erode investment returns. Retail Investors also tend to have the ability to stay invested for a longer period of time, reducing their need to trade frequently and saving money on brokerage fees.

Retail Investors are a key component to the health of the capital markets and a source of funding for corporate entities. Slowly but surely, Retail Investors are gaining access to better information, reduced fees, and larger asset classes that were previously only available to Institutional Investors. This is a good thing as these changes help keep investors confident in the market. Moreover, a healthy capital market ensures a steady flow of funding to corporations and government.

Less Stress

Retail investors, or individuals who invest their own money in stock market investments through a broker, are having an increasing impact on the markets. Many of them use apps like Robinhood to trade, which made trading easier and cheaper.

They are also investing for longer periods and tend to trade less frequently, which saves on brokerage and commission fees. The downside is they may make more behavioral and emotional errors.

Some retail investors barely pay attention to the market, letting their index funds do all the work in their retirement account. Others, however, are highly active market-watchers who make frequent trades. They can often stay vested for a much longer period, and can invest in vehicles and opportunities that they have a real personal interest in. This can be very rewarding for those who enjoy the "game". In addition, they are not as sensitive to market volatility. They can stay invested in the long run and benefit from a compounding effect.