A few years ago under much more turbulent market conditions I noted that:
99% of people don’t want to trade. I don’t know whether the number is 99%, 99.5% or 90%. What I do know is that most people don’t want to trade. They don’t want to watch the screens or get caught up in the day-to-day mayhem that is today’s markets. Even a large percentage of people who think they want to trade, when push comes to shove, find out they don’t have the stomach for it.
Under much better market conditions there has been a surge in interest in those who think they can trade the markets successfully. Brett Steenbarger at TraderFeed notes that investors are increasingly looking for better solutions that don’t require them to take up trading as an avocation:
The larger reason for the investment focus is that baby boomers have found that they need to take control of their finances in a zero interest rate world. These self-directed investors are smart enough to know that they need diversification in their portfolios. They don’t need to be whiz-bang daytraders–they need to be competent portfolio managers.
For once financial innovation is working for investors in that regard. The relentless pressure on fees has made the expense ratio on indexed ETFs for all intents and purposes 0%. For those investors who don’t have the interest or wherewithal to manage their own portfolios the rise of robo-advisors has freed up investors to focus on matters that can have a big impact on their financial lives. In short, we are on the cusp of dramatic changes on how individuals invest.
There is a deep lure towards trading and active investing that will not quickly evaporate. Nor should it. As any one who reads Dr. Brett’s blog there is more to the pursuit of trading success than simply the pursuit of profits. However that should not blind us to the reality that the vast majority of people are in pursuit of something simpler and hopefully obtainable. As I wrote a few years ago:
There is nothing wrong with trading. Just recognize that most people are playing, out of necessity, a very different game. They are trying to keep their jobs, their health insurance and their 401(k) plans. They aren’t traders. They are just trying to earn a modest return on their hard earned savings. Don’t lose sight that they are the other 99%.
Hot markets have a tendency to distract us from our goals. The vast majority of investors can now created low cost, globally diversified portfolios with only a modest effort. The investment toolkits we all have at our disposal now look different than they did even a few short years ago. Therein lies opportunity.