Retail Investors Emerge Stronger in the Market
For quite some time, retail investors have been labeled as “dumb money” by some in the financial world. This term typically describes individuals who often trade based on trends, rather than focusing on the underlying fundamentals of companies or industries, and who may struggle to respond swiftly to significant market changes.
However, that’s changing. Analysis of last year’s trading trends shows that the investments made by individual investors actually outperformed two leading index funds, SPY and QQQ, which aim to replicate the performance of the S&P 500 and the Nasdaq 100, respectively.
A report from Vanda, an independent research firm, highlights that retail trading activity surged to $5.4 trillion in stocks and exchange-traded funds (ETFs) in 2025. That’s an impressive jump—nearly 47% increase compared to the previous year, marking the first rise since at least 2014.
At a recent investor education meetup in Anaheim, California, Joe Mazzola, head of trading and derivatives at Charles Schwab, aimed to change perceptions about retail investors. Approximately 800 clients attended, as he emphasized, “I want to dispel the myth that retail is dumb money. It’s not dumb money anymore.”
Many Americans have participated in the stock market for years, mostly through managed funds within retirement accounts like 401(k)s. Yet, the past decade has seen a shift, driven by the rise of mobile trading apps, zero-commission trading, social media groups focused on investing, and readily available online educational resources which have empowered a new generation of DIY investors in stocks, cryptocurrencies, and beyond.
The COVID-19 lockdown marked a significant turning point in this trend. A wave of new, often younger investors turned to platforms like Robinhood, which played a pivotal role in the meme stock phenomenon that saw companies like GameStop and AMC Entertainment experience remarkable gains.
Despite the volatility introduced by such meme stocks, the overall consistent gains in the stock market have attracted more people to invest. The S&P 500 has recorded only three annual losses since 2015, emphasizing a favorable environment for potential investors.
By early last year, reports indicated that the transfer of funds from checking to investment accounts reached levels not seen since 2021. This trend suggested some younger Americans may have opted for stock investments when home purchase opportunities were out of reach.
According to reports, the influx of funds from retail investors rose by about 50% between 2023 and early 2025. “They’re a significant market force now,” stated Steve Sosnick, chief strategist at Interactive Brokers. “Historically, markets leaned heavily towards institutional investors, but when enough retail investors band together, they can certainly influence market movements.”
Personal Investing Journeys
Frank Sabia, a resident of Encino, California, embarked on his investment journey in 2018. Over the years, he enhanced his knowledge through online investor chat forums and attending seminars like those offered by Schwab. “I gained much insight into options strategies and market charts,” he shared in a November interview. “I’ve grown independent in my investments. I devise my own strategies and seek out deals on my terms.”
Though he trades a variety of assets including cryptocurrencies, his primary focus is on options trading—an agreement to buy or sell a stock at a set price within a designated timeframe. Even though this requires a smaller initial investment, it can be riskier, as options can expire worthless and small stock price changes can lead to significant value shifts.
In April, Sabia opened a Roth IRA and took the opportunity to buy into the market when stock prices plummeted following announcements of tougher tariffs by former President Trump. The S&P 500 fell over 10% in just two days, a decline reminiscent of the market’s downturn during the pandemic. “I just bought the dip,” he noted.
He wasn’t alone in this strategy; individual investors collectively seized the moment, purchasing over $5 billion in stocks within a couple of days. Mazzola remarked, “These retailers were the ones who came in during April, seeing the opportunity in a downturn.”
October 10 marked a significant buying spree, as the market dropped 2.7% following Trump’s threats to escalate tariffs on China.
Continued Momentum
This year, individual investors are maintaining their momentum. Trading activity reached historic highs last month, as reported by JPMorgan. The last week of January was particularly lively, aligning with the S&P 500’s rise to record heights.
Furthermore, retail traders have driven silver prices to new records by purchasing a substantial amount of silver ETFs, according to Vanda’s data. A recent analysis from Charles Schwab found that individual investors were net buyers in January, with Microsoft, Netflix, and Tesla emerging as top picks.
Risk-Taking Behaviors
Many retail investors are exploring beyond traditional stocks and ETFs into other investments. Banda reported that options trading, which involves greater risks, constituted around $650 billion of retail trades last year, with consistent growth dating back at least to 2019.
Noah Goodwin, a high school senior from Castaic, California, started options trading on Robinhood early last year using a custodial account set up by his mother. His initial experience was quite profitable. He purchased $148 worth of Nvidia options on January 20, 2025, just as the stock price dropped due to news of an AI competitor. He sold the option the same day, raking in a $200 profit, making it his first successful trade.
However, he faced challenges too. In July, he misjudged the market dynamics amid increased tariff uncertainties, leading to losses between $600 to $800. “It wasn’t the best month for me,” he admitted.
Sosnick pointed out that while spot buying proves successful for many retail investors, this strategy can lead to decisions made without fully weighing risks against potential rewards. “For some, it can devolve into a mechanical approach,” he elaborated.
Balancing Trading Strategies
It’s becoming common for individual investors to mix riskier trades with more stable strategies to build long-term portfolios. Andy Hu, a financial analyst from Los Angeles who attended the Schwab event, mentioned that he invests 50% of his portfolio in the SPDR S&P 500 ETF Trust. He also looks for micro-cap stocks for shorter trades, as these smaller public companies can see significant price changes due to low trading volumes.
His approach reportedly led to about a 20% increase in active trading accounts in the first 11 months of the previous year. However, after facing declines in major tech stocks and a drop in the S&P 500 in December, Hu decided to pause his trading activities. “I haven’t executed a single transaction in the last two months,” he shared.
