It's never been a better time to be a New investor

May 4, 2017 12:31 PM

My first investment was made in 1997 for 93 shares of a credit card company. That 22-year-old aspiring trader researched the investment by acquiring the company’s annual report via snail mail and supplemented it with a review of the company’s competitive set in a Value Line binder at the library. Information, at that time, was very limited unless you worked on Wall Street. The initial trade was only made after several phone conversations with the broker — each requiring a new price quote — and cost $60 in commissions. 

In the two decades since then, I’ve been witness to an incredible transformation in the brokerage industry. Every aspect of investing has been transformed: technology, customer service, research and of course, pricing. That initial 1997-trade would cost $6.95 today, a nearly 90% decline in 20 years. 

While today’s investors have access to more technology and education than ever before, product offerings alone do not motivate them to become active traders. Market activity is the driving force. 

As we recently witnessed, Snapchat (SNAP) began trading on the secondary market, and for the first time in a long time, an IPO gave investors something to be excited about. The Snapchat IPO thrust the topic of millennials and investing into the headlines. While it is easy to label the SNAP IPO as a millennial phenomenon, it is important to note that the average age of the TD Ameritrade investor in the SNAP IPO was 47. Whatever you think of Snapchat, you have to applaud that it motivated millennials and others to step into the stock market.

At TD Ameritrade, we saw 5,500 choose Snapchat as their very first investment with us. More than 52% of our clients who invested in Snapchat on the day of the IPO had not placed a trade in more than 60 days, 18% had not traded in over a year. For those millennials driven to enter the market, it’s a win. After all, many watched their parents weather the storm of two major drawdowns, in many cases leaving them ill-prepared for their financial futures.  

Young investors, like others, like to invest in companies that they know. And obviously, they know Snapchat very well because, unlike a lot of Wall Street analysts, they use it. But there’s more to it than just buying what you are familiar with. That’s where research and technology come in.

Some analysts say that the number one factor young investors care about is price, and there’s an effort underway in our industry to redefine value based upon that assumption. Yes, commissions have never been cheaper, but if you are a trader, the technology that you use is critical. There are certain data components and tech capabilities that traders can’t perform well without.

And, especially for new investors, access to education to help you make informed decisions is critical. There is value in providing investors access to high-quality research; without it, their ability to trade effectively can suffer. Young traders are unique in that because they’ve grown up having information at their fingertips. It’s critical that content be made readily available to them as they’re less likely to search for the information elsewhere. As the industry continues to lower costs, it’s important for investors to realize cheaper rates don’t necessarily come with the same quality of educational resources. 

Finally, according to the National Center for Education Statistics, more young people are attending college than ever before. Today’s youth is highly educated and recognize that learning about the complexity of the markets is a journey that never ends. If you’re reading Modern Trader, you may feel the same way. We always have more to learn and young investors realize this. Research is key in order to be an effective investor. It’s why a certain young investor mailed away for annual reports and dug through the library back in the 1990s.

It’s never been a better time to be a young investor. Today’s millennials (and all investors) get significantly more information in milliseconds on a brokerage platform, at a fraction of the cost that a young investor did 20 years ago.

About the Author

Nicole Sherrod is Managing Director, Trading, at TD Ameritrade, member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. Commentary provided for educational purposes only.