Though many day traders began due to boredom amid the Covid-19 pandemic, a new survey from digital investment advisor Betterment found several different reasons investors are continuing to day trade.
When asked what their motivation for day trading is, 58% of respondents who day trade said they want to “make more money in a shorter period of time,” according to the data from Betterment and research company Market Cube, who surveyed 1,500 investors over the age of 18 between April 26, 2021 to May 3, 2021. They survey examined how both day trading and the rise of interest in so called “meme stocks” affect financial decisions.
The other popular motivations were less profit-minded, with 43% saying they did it as a source of fun and entertainment and 40% saying new resources, like social media, made them feel empowered to start.
More than half of the survey respondents said they day trade more often as a result of the pandemic. One reason for this is that many investors felt pressed to find a quick source of income, due to job loss and other factors, and turned to day trading, Dan Egan, vice president of behavioral finance and investing at Betterment, tells CNBC Make It.
As Egan points out, there were many different realities for Americans throughout the pandemic. While some may have had disposable income to use for day trading, others may have seen the opportunity to day trade as a way to make a quick return to pay expenses.
But although investing can be a key part of building wealth, financial experts warn against trying to pick stocks and time the market. It’s risky and generally not a reliable way to build wealth.
That’s because it’s extremely difficult to pick stocks that will outperform the market, and even harder to do so consistently over time. No one knows for sure how the market will perform in the future. In fact, many experts liken stock picking to gambling.
It’s better to invest in index funds, which provide automatic diversification and are typically low cost. Index funds tend to outperform actively managed funds as well.
Take it from legendary investor Warren Buffett: “Consistently buy an S&P 500 low-cost index fund,” he told CNBC in 2017. “I think it’s the thing that makes the most sense practically all of the time.”
Despite the risks, 58% of respondents who already day trade say they intend to day trade more post-pandemic. Just 12% indicated that they’d day trade less.
Egan is skeptical that this will actually happen though. “I think that people are underestimating how much future them is going to be different than current them,” he says. “My guess is that, barring something else happening, we’re going to see a real reduction in the volume of day traders, just because they’re [going to be] back in a more social sense.”
Egan also points out how stressful day trading can be for investors constantly trying to turn a profit. Indeed, 86% of respondents said they’re stressed to some degree about finances compared to 65% of non-day traders.
“This is what we’re forgetting about these day traders: When we’re at home, we’re looking for stimulation. There can be good stimulation, but it can also be causing stress,” Egan says. “When you’re winning, it feels good. But when you’re losing, it feels bad.”
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