Survey: New Investors Less Likely to Seek Advice on Crypto than Stocks and Bonds

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Newcomers to the investment world often ask for advice before dipping their toes in the water.

But who do they turn to for these recommendations? The answer largely depends on the asset class. Along with traditional stocks and bonds, they go to financial advisers. For crypto, they often consult their friends or the Internet.

This is just one of many differences between new crypto buyers and more traditional investors highlighted in survey results released Monday by the Financial Industry Regulatory Authority and NORC, a University research institution. from Chicago. The group’s 12-page report found that 29% of investors who opened their first taxable investment account in 2022 cited financial professionals as their primary source of investment information. Yet among people who invested in crypto for the first time last year, only 9% cited financial planners as their primary source of information.

New crypto investors were on the contrary much more likely to put their money into digital assets after talking to friends, colleagues or family about the sources of information cited by 48% of the total. Other sources frequently consulted by new crypto investors include personal research, cited by 25% of the total, and social media, also cited by 25%.

Similarly, new crypto investors were much more likely to cite a friend’s suggestion as their primary motivation for investing. Just over 30% of respondents to the FINRA and NORC study who invested in cryptocurrency in 2022 said they were acting on the advice of a friend. Only 9% of newcomers to stocks, bonds and other standard investments cited the same source.

Newcomers to traditional investing were much more likely to cite a desire to save for retirement. About 12% of traditional inventors cited this reason as their main driver, while only 6% of new crypto investors said the same. Equal percentages of both types of newcomers, meanwhile, said they started investing because they could start with small amounts (24% of respondents) or didn’t want to miss opportunities (10%).

Thomas Kopelman, a financial planner and founder of AllStreet Wealth in Indianapolis, said new clients are just as likely to approach him for advice on taxes and buying property as they are for investment strategies.

He said he thinks the wealth management industry’s decreasing reliance on commissions and other fees for individual trades in stocks and other securities has made people more comfortable approaching planners for investment advice.

“They now realize that financial planners are really there to help them,” Kopelman said. “I don’t care about giving you access to certain assets. I’m going to help you build your financial life.”

Nadine Burns, certified financial planner and CEO of A New Path Financial in Ann Arbor, Michigan, said young and new investors generally have a “bad reputation.” Many of the clients she works with are people fresh out of college who show no reluctance not only to follow her advice on savings, but also to take out long-term life insurance and pay off their debts. credit card, she said.

“Especially if they have kids, they do these things at a higher rate than their parents,” Burns said.

Burns said his clients rarely, if ever, inquire about crypto. If they do, she says, she does her best to persuade them to consider less risky alternatives.

FINRA, the broker industry self-regulator, and NORC conducted the survey by interviewing 465 people who had either opened their first taxable investment account or invested in cryptocurrency for the first time in 2022. The study lasted from September 9 to September 9. 29 of 2022.

The study also compared the latest findings on new investors with a similar survey conducted almost two years earlier. This focused on surveys of 480 adults between October 26 and November 13, 2020.

The results suggest that the pace of new investors entering the market has not slowed since the peak seen during the COVID-19 pandemic. Partly spurred on by stimulus checks arriving in their bank accounts, Americans poured money into the stock market after the initial outbreak in March 2020.

JP Morgan Chase estimates that 10 million brokerage accounts were opened in 2020, many through online services like Robinhood Markets. Investors invested more than $900 billion in equity funds in 2021, surpassing the total for the previous 19 years.

FINRA and NORC research suggested that 3.6% of American adults opened investment accounts for the first time in 2020. Two years later, the percentage had increased slightly to 4.2%.

“While stories of new account openings no longer flooded the media in 2022, the influx of new investors has not slowed,” according to the report.

Cryptocurrencies like Bitcoin have had an even wilder ride in recent years. Investors had about $1.15 trillion in crypto as of Tuesday, according to online tracking service coinmarketcap.com. Of this amount, more than $532 billion was in Bitcoin.

Bitcoin started the year trading around $16,000 as the digital asset industry was still reeling from revelations of fraud at crypto exchange FTX. Now, however, it’s back up to around $27,000 for a piece.

Newcomers who made their first investments in cryptocurrency were even more common. The survey results suggest that 4.9% entered the market for the first time in 2022 with crypto purchases.

Their reasons for investing also differed from those of other newcomers. Only 25% of new crypto investors said they were saving for retirement, while 56% of traditional investors cite this goal. Differences also emerged in the number of people who said they were primarily interested in investing (39% for crypto investors and 29% for traditional investors) and speculation (29% among crypto investors and 24% for traditional investors).

New crypto investors tend to show less willingness to hold their assets for the long term. Almost 28% said they would sell their holdings in less than a year, far more than 2.5% of newcomers to traditional investing who said the same. Instead, more than 19% of traditional investors said they plan to hold their investments for more than 10 years. Only 8.4% of new crypto investors could say the same.

Crypto investors tended to be younger and were less likely to hold a college degree. They had an average age of 37, while traditional investors came in at 43 on average. And only 28.5% of cryptocurrency investors had four-year college degrees, well below the 46.3% of traditional investors who held a degree.

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