ASIC report captures Australians’ investing behaviour
Where are Australians investing? What are the factors driving their investment decisions? Where are they going to source investment-related information?
Latest research report from the Australian Securities and Investment Commission (ASIC) captures all this and more about Australian retail investors' motivations, attitudes and behaviours in the period following the onset of the COVID-19 pandemic.
Titled 735 Retail investor research (REP 735), the report surveyed 1,053 Australian retail investors aged 18 and over who had directly traded in securities, derivatives or cryptocurrencies at least once since March 2020. Despite changes to economic conditions since the research was conducted in November 2021, retail market activity generally remained elevated this year compared to pre-pandemic levels, according to ASIC.
“With so many new investors active in financial markets, the research builds on our understanding of retail investors and helps us consider where our regulatory efforts are warranted,” said ASIC Chair Joe Longo.
"The growth in retail markets since COVID-19 has fuelled changes to the mix of product types being traded. The research also confirms the prominence of digital and social channels as sources of information for investors, and the diversity in trading platforms they use," he said.
Of the 1,053 retail investors surveyed, 44% reported holding cryptocurrency, making it the second most common product type held after Australian shares at 73%. A quarter of surveyed investors who held cryptocurrency indicated that cryptocurrency was the only investment they held, the report revealed.
The majority of investors (82%) held fewer than five product types overall (e.g. Australian shares, cryptocurrencies, international shares), the report found. Over one-third (36%) of investors held one product type only (e.g. Australian shares only), 24% held two different product types, 22% held three or four product types, and 18% held five or more product types. Of those investors who held only one product type, most were invested in either Australian shares only (53%) or cryptocurrencies only (31%).
The research also showed that, after bank trading platforms (used by 31% of surveyed investors), the three most commonly used platforms all specialised in cryptocurrency.
Longo said, “We are concerned about the number of people surveyed who reported investing in unregulated, volatile crypto-asset products. This research does highlight during this particular point in time, the appeal of crypto-assets to the market. According to the survey, only 20% of cryptocurrency owners considered their investment approach to be ‘risk-taking’, raising concerns that investors did not understand the risks of this asset class.”
“ASIC is also concerned that there are limited protections for crypto-asset investments given they have become increasingly mainstream and are heavily advertised and promoted. There is a strong case for regulation of crypto-assets to better protect investors.”
What was bought and what was sold?
Cryptocurrencies, Australian shares, international shares, and gold or silver were reportedly being bought more often than they were being sold post March 2020.
Overall, when comparing the frequency at which products were reportedly bought and sold since March 2020, cryptocurrencies, Australian shares, international shares, and gold or silver were reportedly being bought more often than they were being sold. Around nine in ten investors who had traded these products since March 2020 said they had bought them but only around two-thirds reported selling any of these types of products in that time.
Among those who had traded each product, the products bought most frequently (weekly or more often) since March 2020 were contracts for difference (CFDs) (49% of those who had traded CFDs indicated they bought this product type weekly or more often), exchange traded options (ETOs) (48%), market linked notes (48%) and margin foreign exchange (43%).
These products were also the most likely to be sold frequently, with over 40% of those who had traded these products indicating that they sold CFDs (47%), ETOs (41%), market linked notes (44%) and margin foreign exchange (42%) weekly or more often since March 2020, according to the report.
Australian shares were bought and sold less frequently than other product types, with less than a quarter of investors who had traded Australian shares reporting buying (23%) or selling (17%) this product at least weekly.
Around one in three investors (32%) who had traded cryptocurrency reported buying this product weekly or more often since March 2020, while 23% reported selling it at least weekly. Over one-quarter of investors (28%) who had traded cryptocurrency reported ‘never’ selling this product since March 2020.
Digitalisation and socialisation of trading
The research shows that investors are using a range of online trading platforms that offer easy access to a range of products. Many investors are also using digital channels and social media platforms to source information on investing. Since March 2020:
- 34% of surveyed investors reported sourcing information from Google searches
- 41% of surveyed investors reported sourcing information from social media and networking platforms, including YouTube (20%), Facebook (11%), podcasts (10%), and financial influencers (10%).
With more than half (51%) of new investors aged between 18 to 34 years old, Longo said, ‘It’s encouraging to see more people, particularly younger investors, engaging in the market. A third of all surveyed investors said they are ‘in it for the long-term’.
However, half of those surveyed admitted they have invested in things because they didn't want to miss out. This, coupled with more complex and opaque financial product and service offerings, and the speed and reach of marketing and distribution through digital channels, may expose investors to new risks or higher levels of existing risks.
Several factors drove the decision to first start investing but the biggest drivers, according to the report, were social and financial.
"Multiple factors influenced investors’ decision to first start investing, with the most common being family or friends (27%), wanting to generate another income stream (26%) and wanting financial independence (23%). Overall, there were few significant differences by years of investing experience, gender or age, with the most commonly selected factors holding true for all key groups."
"There were some differences by age among the less common factors, including that investors aged 55 and over were more likely to select ‘I didn’t want to rely on superannuation / pension for retirement’ (16% vs. 8% of those aged 18–34 and 11% of those aged 35–54) and less likely to indicate ‘I wanted to make some quick money’ (9% vs. 16% of those aged 18–34 and 17% of those aged 35–54)."
Some recent investors indicated that COVID-19 was a factor influencing their decision to start investing, either because they ‘had extra time to research and invest due to COVID-19’ (13%) or because they ‘had extra money to invest due to COVID-19’ (11%).
"Male investors reported both buying and selling some products more frequently than female investors. For example, 22% of male investors who had traded Australian shares said they sold these at least weekly compared to 7% of female investors. The pattern was similar for cryptocurrencies (26% of male investors sold these at least weekly vs. 14% of female investors)," according to the report.
Key investor concerns
Fewer than one in ten investors (7%) said they had experienced what they felt was a ‘concerning issue’ when investing or doing a trade, such as a scam or frozen funds.12
Among the investors who said they had experienced a ‘concerning issue’, a quarter (25%) misunderstood the survey question and reported a minor issue such as a ‘forgotten password or other technical issue’, according to the report.
"A further quarter (25%) did not describe any issue or provided no details of the concerning issue.13 Nearly half (48%) described an actual serious or concerning issue. The most commonly described issues were having been ‘scammed’ (cited by 18% of those who said they had experienced a concerning issue), ‘cryptocurrency related issues’ (18%), ‘scam attempts’ (6%), ‘funds being stolen or having gone missing’ (5%), and a range of 'other concerning issues’ (12%)."
When asked to name any Australian financial regulators they had heard of, more than half of investors (55%) indicated they did not know any. One-third of investors (33%) were able to correctly name at least one Australian financial regulator (i.e. ASIC, APRA, RBA, ACCC, Treasury, ATO, AUSTRAC, or CFR).11
One in six investors (16%) provided at least one incorrect response (i.e. named at least one entity that was not an Australian financial services regulator, such as specific banks, trading platforms, businesses in other industries, or other government agencies), and 12% of investors provided only incorrect responses.
Digital engagement and regulatory pace
“ASIC is working to better understand the use of digital engagement practices and maintain regulatory pace with these developments. Risk is part of the investment process, but entities need to operate fairly and avoid the use of features that can harm investors’ said Longo.
The research has been informing our work in the retail sector, including changing practices in retail product design and distribution, investor protection strategies and crypto-assets.
The report was prepared by SEC Newgate in close consultation with ASIC. The research used a mixed method approach involving a preliminary qualitative research phase (conducted in August 2021) followed by a nationally representative online survey (conducted in November 2021).