Do you manage your own investment funds? If so, you're in a club that continues to grow in size, despite the fact that the recent market rally has left many investors unconvinced. Recent data found that online brokers, the most common home for retail investors, have gained three percentage points of market share, representing a 19% annual growth rate, while wire houses like Morgan Stanley and Goldman Sachs have lost 1.1 points. Other retail brokerages, companies that manage money on behalf of clients, lost four percentage points in the same period.

If more individuals are electing to invest their money on their own, why is this happening on such a large scale?

Fear
2008 and 2009 proved to be a wakeup call for consumers. They found that their money was at serious risk and the people they trusted to guard their funds were just as surprised as they were. In their mind, they were paying big fees for very little protection, leading them to believe that they could do a better job managing their own money.

With the events of the Great Recession still fresh in their minds, according to an article in Investment News, a trade publication for financial advisers, retail customers feel like they are in better control of their money if they manage it on their own.

Better Research
Thanks to the Internet, retail investors have access to more information than ever. The information not only includes earnings reports and stock quotes, but educational content from the world's top investors. Not only does the individual investor have access to much of the same information as the pros, finding relevant information is easy. If you don't know where to look, there are plenty of educational articles that tell you how to sift through the huge volume of information.

Financial Media
Love it or hate it, the amount of media outlets dedicated to the financial markets continues to increase, and they have become a 24-hour-per-day presence. Even if you're not close to a TV, their smartphone apps and breaking news notifications allow the investor to stay up-to-date, regardless of where they are.

Some experts argue that the financial media encourages irresponsible behavior like noise trading, without the knowledge to be profitable, but there's no doubt that this relatively new source of information has caught the eye of investors of all levels.

Popularity of ETFs
There are now more than 1,000 exchange traded funds on the market. ETFs offer the retail investor a low-cost way to diversify their portfolio without having to use mutual funds. There are ETFs for all sectors of the market, allowing broad diversification to be achieved without professional level knowledge.

Social Media
How would you like to run your trades past other traders or well-known professionals? Social media has allowed for great communication amongst traders. Social media has allowed for greater communication between individuals in the market. Most discount brokers now have robust message boards and real-time chat platforms, allowing the trader to gain valuable input before committing real money. Other social media platforms like StockTwits and Facebook provide real-time information.

The Bottom Line
The retail investor is gaining ground, but a tool is only as effective as the person using it. Many discount brokers offer virtual or paper trading accounts where the new investor can trade fake money until they have the experience to manage their own funds. Some argue that the oversimplification of stock market information leads investors to believe that managing assets is easy and that may lead to significant losses. Retail investors without the knowledge and experience to effectively manage their investments should still leave retirement funds to those who understand portfolio management.

Related Articles
  1. Mutual Funds & ETFs

    Top 5 Chinese Mutual Funds

    Learn about some of the most popular and best performing mutual funds that offer investors exposure to the important emerging market economy of China.
  2. Investing Basics

    Explaining Unrealized Gain

    An unrealized gain occurs when the current price of a security exceeds the price an investor paid for the security.
  3. Investing Basics

    Explaining Risk-Adjusted Return

    Risk-adjusted return is a measurement of risk for an investment or portfolio.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Agency Bond

    Find out about the iShares Agency Bond exchange-traded fund, and explore detailed analysis of the ETF that tracks U.S. government agency securities.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Low Volatility

    Find out about the PowerShares S&P 500 Low Volatility ETF, and learn detailed information about this fund that provides exposure to low-volatility stocks.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Bond

    Find out about the Vanguard Intermediate-Term Bond ETF, and delve into detailed analysis of this fund that invests in investment-grade intermediate-term bonds.
  7. Active Trading Fundamentals

    Arbitrage Pricing Theory: It's Not Just Fancy Math

    What are the main ideas behind arbitrage pricing theory? We provide a simple explanation of the model and how to use it.
  8. Investing Basics

    Explaining the High-Water Mark

    A high-water mark ensures fund managers are not paid performance fees when they perform poorly.
  9. Investing Basics

    Explaining Front-End Load

    A front-end load is a commission or sales charge paid by the investor at the initial purchase of an investment.
  10. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
RELATED TERMS
  1. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  2. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  3. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  4. Systematic Manager

    A manager who adjusts a portfolio’s long and short-term positions ...
  5. Unconstrained Investing

    An investment style that does not require a fund or portfolio ...
  6. Sharpe Ratio

    A ratio developed by Nobel laureate William F. Sharpe to measure ...
RELATED FAQS
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  3. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  4. Why should an investor include an allocation to the telecommunications sector in ...

    An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
  5. What are some mutual funds that do not have 12b-1 fees?

    Some of the most popular and best-performing mutual funds that do not include any 12b-1 fees in the expenses charged to fund ... Read Full Answer >>
  6. Are there mutual funds that take advantage of merger arbitrage?

    A few select mutual funds focus investing on merger arbitrage. Among these are the Merger Fund, the Arbitrage Fund and the ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!