US Investors Pull Back from Risk, Crypto Loses Shine: FINRA Study

A recent study by the Financial Industry Regulatory Authority (FINRA) Foundation reveals a significant shift in investor behavior. The pace of new investors entering the market has slowed considerably, and there's a marked decrease in the willingness to take substantial risks. Cryptocurrency, once a hot commodity, is also seeing a decline in investor interest.

Key Takeaways

• The number of new investors entering the market has dropped significantly.

• Investors are becoming less comfortable with taking substantial risks.

• Interest in cryptocurrency investments has waned, despite continued awareness.

• Younger investors, while still more risk-tolerant, show a notable decline in risk-taking appetite.

A Slowdown in New Investors

The FINRA Foundation's National Financial Capability Study indicates a sharp decline in the rate at which new investors are joining the market. In 2024, only 8% of investors reported starting within the last two years, a substantial decrease from the 21% reported in 2021. This trend suggests that some of the younger investors who entered the market during the pandemic may have since exited.

Shifting Risk Appetites

While the proportion of investors willing to take "average risks for average returns" remained stable at 48%, the percentage of those willing to embrace substantial risks for significant returns saw a decline. This reduction was most pronounced among investors under 35, dropping from 24% to 15%. Despite this decrease, a majority of younger investors (62%) still feel that taking considerable risks is necessary to achieve their financial goals.

Cryptocurrency's Fading Appeal

Although awareness of cryptocurrency remains high (92%), the interest in investing in it has decreased. The percentage of investors considering cryptocurrency investments fell from 33% in 2021 to 26% in 2024. This decline is particularly evident among younger investors, with a 13 percentage point drop in consideration among those under 35. The study suggests that the cryptocurrency market crash in 2022 may have contributed to a perception of increased risk, with about two-thirds of crypto-aware investors viewing it as "extremely" or "very" risky.

Investment Preferences and Influences

Individual stocks continue to be the most common investment, followed by mutual funds. However, the growth in Exchange Traded Fund (ETF) ownership has stalled. The study also noted that younger investors are more likely to own individual stocks and have options accounts. Social media is an increasingly important information source, with 29% of investors relying on it, and "finfluencers" are used by 26% of investors for decision-making, especially among those under 35.

Sources

• New Investor Numbers Drop Sharply, FINRA Finds, Wealth Management.

• New FINRA Foundation Research Examines Shifting Investor Behaviors, Preferences and Attitudes, finra.

• Margin Trading and Cryptocurrency Investment Among U.S. Investors: Evidence from the National Financial
  Capability Study, MDPI.

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