Follow the Money: How COVID-19 Initiated a ‘new wave’ of first time investors
Beginning in early March, global stock markets tumbled to record-low prices due to the novel coronavirus (COVID-19) impacting the world’s global economy. Despite the millions of people negatively impacted by job-cuts and government shutdowns, a large ‘new wave’ of first-time investors—led by ambitious young adults—took advantage of this time by learning how to trade in the stock market.
However, unlike stock market crashes of the past, this year proved to be quite different according to Rumart Navarro, a Personal Banking Associate at TD Bank.
“Being forced to stay home meant that a lot of people suddenly had or needed the money. A combination of this plus the willingness to learn how to invest through different resources, meant that (a record) number of people were investing like we haven’t seen before,” said Navarro.
Now, more than ever, growing technology gave people more access through digital platforms. Finance apps such as Wealthsimple and Wealthbar, were some of the more popular methods to invest. Being able to use these platforms in the palm of your hands meant ease of access for new users, according to Navarro.
COVID-19 had forced a majority of people to be in a unique position in regards to their financial status. With countless being laid off or losing their jobs completely meant that people had lost their main source of income. However, government financial aids such as the Canadian Emergency Relief Benefit (CERB) and Employment Insurance (EI) put quick money into people’s pockets, which in turn, many could now use for investing. This, along with time and accessible resources produced a perfect recipe for people to start working on their finances.
With this realization of time, money and resources, 24-year-old Gerome Balneg became instantly attracted to this new opportunity.
“If there’s anything I gained from this terrible year, it was learning how to grow better, financially.”
Before COVID-19 lockdowns, Balneg never pictured himself investing so diligently at the age of 24. It was only after getting laid off from his part-time job—with extra money leftover from government bursaries — that he realized there was a chance to capitalize on 2020’s poor economic downfall in the stock market.
“I felt pretty useless just sitting at home. I was constantly looking for ways to make money on the side. The idea to start stock trading only really came to me when I figured that I had the time, the money and the resources to do so, so I thought to myself, why not try it out?”
Like thousands of Canadians that tried their hand at stock trading during the COVID-19 lockdowns, Balneg earned as much as he would on a bi-weekly basis in the first week.
Is this year’s returns sustainable?
While new stock investors may have earned a few percent on their investments, experts have alluded that this year is an unrealistic expectation of pre-pandemic market conditions.
“This is a very special year for investing, and while we have seen lots of young people earn a lot on their investments, they could soon be in for a rude awakening,” said Michael Hlinka, a CSC instructor from George Brown.
“Evaluations are so unpredictable, and with this momentum held by the influx in new investors suggests that future investments could as easily be unsustainable.”
So..should I start investing in stocks?
PROS
CONS
HIGH Reward
“Ultimately the idea is, if you know what you’re doing, there is a lot of room to make money with stock investing.”
Flexibility
“The ability to diversify your portfolio in an unlocked account can be strategically used to your advantage—versus in a simple savings account.”
Control
“You can choose what you want to do with your money.”
HIGH risk
“If you don’t know what you’re doing, there’s a lot of room for error. Unpredictable drops are where beginners can really lose a lot.”
Time
“Most successful plans are manifested with time, and this is something that not everyone has.”
No Guarantees
“Returns may be unsustainable and you can end up losing more than you came in with.”
With technology changing and stock investing becoming more accessible than ever before, why did it take so long for young people to become serious about investing?
Hlinka said that this question has many different, complex answers.
“You see, it’s hard to pinpoint everyone’s situation. People might not have the time, or enough money to do so. They could be saving up for something, and would rather have an account that they can frequently access,” said Hlinka.
While these explanations are justifiable in hindering a young adult’s ability to invest, Hlinka said the main reason that people have failed to invest is due to having little, or no financial literacy.
What is "Financial Literacy?"
“Financial Literacy” is basically a strong understanding of money. This means you know how to personally budget, invest and manage your money effectively! – Rumart Navarro
“It’s a shame that financial illiteracy can hold a young person back from learning how to invest. I understand that something unfamiliar may be intimidating, but with an array of tools and resources (out there), it’s become very simple to do basic research about the different kinds of investment opportunities out there,” said Hlinka.
In addition to utilizing online financial education resources, Hlinka also mentioned that young investors should use their free time during COVID-19’s lockdown to learn more about what they want to do with their money.
“It all starts by learning what you want to do. For example, if you want to save up for a house or car down-payment, then you should calculate how much you need (to put in) each month. With this philosophy, things will slowly add up if you do things a little at a time.”
Similar to Hlinka’s philosophy, Lilac Cãna, an Executive Director with Experior Financial Group, said that learning how to set financial goals—especially during the pandemic— is “the key” in establishing a successful investment plan.
“The problem with these millennials and first time investors, is that they’re diving in head-first into an uncertain market with no direction. The first place to start before committing to anything with money is understanding what you want to do with it, then figure out how you’re going to use it,” said Cãna.
Despite the market uncertainty, Cãna said she hopes that the upkeep in young investors continues to grow, even after the pandemic is over.
“People should take this time to thank the pandemic for allowing them to understand more about investing, because God willing, who knows when the next opportunity like this will come along?”
Want to become better with your money? Ask the experts!
Rob Carrick
Rob is a Personal Finance Columnist for the Globe and Mail. Before working at the Globe, he worked for The Canadian Press wire service and the federal Department of Finance in Ottawa. Rob also published a number of personal finance novels, including the bestseller, How to Pay Less and Keep More for Yourself.
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Michael Hlinka
Michael is a tenured professor at George Brown College in Toronto, where he teaches the Canadian Securities Course. He also runs the Passing the CFA program at the University of Toronto School of Continuing Studies, and does business commentary for CBC Radio.
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Rumart Navarro
Rumart is a Personal Banking Associate at TD Bank. Graduating at Ryerson University in 2019, Rumart has made it his quest to expound his financial knowledge on young, curious investors like himself. Currently, he is studying for his CSC license at George Brown.
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Lilac Cãna
Lilac is an Executive Director with Experior Financial Group. Working in the finance industry for more than 10 years, she has worked with a majority of financial institutions, offering a plethora of financial solutions for young people and families across the nation.
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