Decades ago, investing in the stock market was a luxury reserved for the wealthy, not the working class or those with limited incomes.
But the investment landscape has shifted in recent years with the evolution of investment marketing campaigns. Now, advertisements for global trading platforms urging individuals to invest with as little as 10$ are becoming increasingly common.
The result is that, for the first time in the United States, most low-income individuals now have an investment account, and more than half of these new investors entered the markets within the past five years, according to a report in The Wall Street Journal.
Most of these individuals are driven by a desire for adventure and the pursuit of additional income, despite the high risks, given the limited disposable income of the middle and lower classes.
They are also part of a growing wave of low-income investors who are flocking to financial markets at an unprecedented rate.
For decades, low- and middle-income Americans were largely left out, while high-income earners amassed their fortunes in a series of bull markets since 1982.
In recent years, however, they have entered the market in force and now make up a larger share than ever before of individual investment account holders.
Among Americans with incomes between $30,000 and $80,000, 54% have taxable investment accounts.
Half of these investors entered the market within the last five years, according to a new survey of 2,750 adults conducted by Commonwealth and BlackRock.
A Commonwealth survey showed that 45% of new investors deposited $5,000 or more into their accounts. Around 40% of those who entered the market since January 2020 plan to hold their investments for at least a decade to achieve long-term goals such as retirement.
These individuals represent a new wave of retail investors with increasing influence in the markets, fueled by commission-free trading, social media stock tips, and investment apps that make trading as easy as a few taps on a phone.
Their eagerness to capitalize on low prices also helped revive the stock market after its decline in April due to tariffs.
The rise of individual investors has helped pave the way for brokerage firms like Robinhood and Webull, which have made trading more accessible and attracted more people to the markets.
Some investors have also ventured into more complex financial instruments previously reserved for professionals, such as futures and short-term options trading.
Dreams of the 20th Century
On the other hand, this influx of low-income investors (poor investors) into the stock market suggests the fading of 20th-century dreams of building wealth through traditional means.
As the Wall Street Journal noted, the underlying trend is the decline of homeownership, a traditional way to build wealth for previous generations, as stock trading becomes easier and cheaper than ever.
It’s striking to see more low- and middle-income families participating in the stock market. There simply aren’t many other avenues for building wealth.
But those who began investing within the last five to ten years have experienced an exceptional period of high returns and only brief periods of decline.
Since the beginning of 2020, the S&P 500 has risen by approximately 130% with reinvested profits. The average annual return has exceeded 15%, while many companies are trading at historically high valuations relative to their earnings.
Economists have long maintained the adage that “the stock market is not the economy,” meaning that temporary dips on Wall Street don’t necessarily affect the average citizen’s pocket.
This insulation can sometimes be beneficial. However, as more households tie their financial fate to the market, the risk of widespread downturns increases, especially as many individual investors engage in individual stock buying and selling, ignoring the long-standing advice to invest in diversified, long-term funds.
JPMorgan figures
Data from JPMorgan Chase indicates that lower-middle-income Americans now contribute 11% of total funds flowing into individual investment accounts, up from an average of about 6% between 2010 and 2015.
The firm obtained this data by tracking customer transfers from their checking accounts to investment accounts.
Last May, low-income earners made up about a third of JPMorgan Chase customers who transferred funds to investment accounts, up from a monthly average of about 20% during the period between 2010 and 2015.
The post-pandemic boom also produced many new millionaires. Davis Cheney, 30, was among the millions of investors who entered the market during the pandemic, when many were stuck at home with extra savings.
“I was playing computer games when someone mentioned making $20 on a stock,” Cheney said. He then opened a brokerage account and began trading stocks and options. “It’s like a game,” he added. “If you like the game, you keep going.”
While living with his parents, he invested almost every dollar of his salary from his job as a waiter at The Cheesecake Factory. He followed influencers on X and YouTube who shared their stock recommendations.
In 2023, he bought hundreds of shares of the data analytics company Palantir. The following year, the enthusiasm of individual investors like him contributed to the company’s meteoric rise in stock price. The share price jumped by approximately 900% over the past two years.
Cheney still works a day job as a cardiac imaging technician, but managing his now multi-million dollar portfolio has become his primary passion. He said, “I feel like there’s been a shift… In the past, individual investors were ridiculed. Now we’re a huge voice in how the markets operate.”
High risks
But this rapid entry into the markets is not without risks. According to BlackRock and Commonwealth, around 35% of these new investors had to temporarily halt their investments due to sudden financial pressures.
The survey attributes this to the limited financial safety net available to this group, as unexpected expenses—such as healthcare costs or high rents—often force investors to withdraw some of their funds.
Many also reported uncertainty about their investments and a lack of experience in risk management, further complicating their participation in the market.
Economic experts warn that any major market downturn could hit this group hard, given that it has entered an exceptional upward trend in recent years, making its investment strategies less diversified and more vulnerable to risks.
