Newcomers to the world of investing often seek out advice before dipping their toes in the water.
But who is it they're turning to for those recommendations? The answer tends to depend greatly on asset class. With traditional stocks and bonds, they're talking to financial advisors. For crypto, they're often consulting their friends or the internet.
That's just one of many differences between new crypto purchasers and more traditional investors highlighted in survey results released Monday by the Financial Industry Regulatory Authority and NORC, a University of Chicago research institution. The groups'
New crypto investors were instead far more likely to put their money into digital assets after talking to friends, colleagues or family — the sources of information cited by 48% of the total. Also among the frequently consulted sources for new crypto investors were personal research, cited by 25% of the total, and social media, also cited by 25%.
New crypto investors were similarly far more likely to cite a friend's suggestion as their main impetus for investing. Just over 30% of the respondents to the FINRA and NORC study who put money into cryptocurrency in 2022 said they were acting on a friend's advice. Only 9% of newcomers to stocks, bonds and other standard investments cited the same source.
Newcomers to traditional investing were far more likely to cite a desire to save for retirement. Roughly 12% of traditional inventors cited that reason as their main impetus, whereas only 6% of new crypto investors said the same thing. Equal percentages of both types of newcomers, meanwhile, said they began investing because they were able to start with small amounts (24% of the respondents) or didn't want to miss out on opportunities (10%).
Thomas Kopelman, a financial planner and the founder of AllStreet Wealth in Indianapolis, said new clients are just as likely to approach him for advice on taxes and purchasing property as they are for investment strategies.
He said he does think 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 are realizing now that financial planners really are here to help," Kopelman said. "I don't care about getting you into certain assets. I'm going to help you build your financial life."
Nadine Burns, a certified financial planner and the CEO of A New Path Financial in Ann Arbor, Michigan, said young and new investors generally get a "bad rap." Many of the clients she works with are people fresh out of college who show no reluctance not only to follow her advice on saving but also buying long-term life insurance and paying off credit card debt, she said.
"Especially if they have kids, they are doing these things at a higher rate than their parents probably did," Burns said.
Burns said her clients rarely, if ever, inquire about crypto. If they do, she said, she does her best to persuade them to consider less risky alternatives.
FINRA, the broker-dealer industry's self-regulator, and NORC conducted the survey by polling 465 people who had either opened their first taxable investments accounts or invested in crypto currency for the first time in 2022. The study lasted from Sept. 9 to Sept. 29 of 2022.
The study also compared the latest results on new investors with a similar survey conducted nearly two years before. That looked at polls taken of 480 adults between Oct. 26 and Nov. 13, 2020.
The results suggested that the pace of new investors coming into the market hasn't slowed since the peak seen during the COVID-19 pandemic. In part driven by the arrival of stimulus checks in their bank accounts, Americans poured money into the stock market after the initial outbreak in March 2020.
JP Morgan Chase
FINRA and NORC's research suggested that 3.6% of U.S. adults opened investment accounts for the first time in 2020. Two years later, the percentage had climbed slightly to 4.2%.
"While stories of new account openings no longer flooded the media in 2022, the influx of new investors did not slow," according to the report.
Cryptocurrencies like Bitcoin have been on an even more wild ride in recent years. Investors had roughly $1.15 trillion in crypto on Tuesday, according to the online tracking service
Bitcoin started the year trading around $16,000 as the digital assets industry still reeled from revelations of fraud at the crypto exchange FTX. Now though, it has shot back up to about $27,000 for a coin.
Newcomers who made their first investments in cryptocurrency were even more common. The survey results suggested 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, whereas 56% of traditional investors cited that goal. Differences also showed up in how many people said they were mainly interested in learning about investing (39% for crypto investors and 29% for traditional investors) and speculating (29% among crypto investors and 24% for traditional investors.)
New crypto investors tended to show less willingness to hold onto their assets for the long term. Nearly 28% said they would sell their holdings in less than a year, far more than 2.5% of the newcomers to traditional investing who said the same thing. More than 19% of the traditional investors instead said they planned to keep 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, whereas traditional investors came in at 43 on average. And only 28.5% of crypto investors had four-year college degrees, well below the 46.3% of traditional investors who were degree holders.
