In the week of May 13 to 17, the shares of GameStop, AMC, BlackBerry, and other companies soared and then plummeted—all fueled by Keith Gill, known online as Roaring Kitty. The finance influencer who was at the heart of the 2021 memestock frenzy posted on X (previously known as Twitter) for the first time in years. The online community, r/wallstreetbets, via Reddit, became active again with individuals posting their returns (and subsequent losses). In the 48 hours following Roaring Kitty’s tweet, the trading volume in GameStop was significantly above average.

Despite its impact on certain areas of the market, this type of investing represents just one small faction of all retail investors. In fact, only about 14% of retail investors are investing because they are looking to outperform the market.

Fortunately, far more retail investors are most motivated by the goals of saving for retirement, future generations, emergency funds, or significant investments such as education or buying a home. For example, 48% of retail investors invest with the goal of saving enough money to retire and 43% invest to build wealth for themselves and their descendants.

For retail investors, it’s reasonable that figuring out the right strategy to reach these goals can be difficult. An influx of information from social media, peers, and financial services can add to the noise.

A much-needed revolution

Today, there’s a significant opportunity for policymakers and financial institutions to step up and better support retail investors.

A revolution in financial education is needed globally. Research by the Global Financial Literacy Excellence Center shows that less than half of adults in the U.S. are financially literate, with financial literacy rates even lower among Gen Z—this is far too low.

Only 48% of investors use a financial advisor. Professional and institutional investors (i.e. the very hedge funds that the meme stock movement sees as a foe) have access to more expertise and information than retail investors. Despite growing financial education, information asymmetry persists and individual investors have limited access to the sophisticated tools, in-depth market data, and large pools of capital that institutional and professional investors have.

While 65% of retail investors are interested in more comprehensive advice, high cost, and affordability concerns keep many from seeking financial advisory services.

This barrier has some potential solutions. Financial learning needs to be thought of as a lifelong journey that needs to be built into education systems and workplaces globally. New innovations in financial advice—including AI advisors and other tech-augmented advisory services—offer custom advice suited to individual financial limitations and goals.

Understanding the retail class of investors

Data suggests that retail investors can experience lower returns through individual stock selection and in some cases choose riskier or less-liquid assets such as options.

Enhanced data on retail investor preferences and behavior could help institutions and policymakers guide investors toward building diversified portfolios that align with their risk tolerance and long-term financial goals. A better understanding of the retail investor cohort can inform improved products, information sharing, and policies to suit the current behaviors and vulnerabilities of retail investors.

Policymakers and financial institutions must balance increasing access to financial markets with investor protection. This involves enhancing transparency about the risks and costs associated with investing, as well as ensuring that investors are fully informed before making decisions. This could look like improved behavioural nudges to guide investors towards more prudent choices, and more widespread availability of financial advice. These measures aim to create a more equitable and secure financial environment while encouraging responsible participation in the markets.

Policymakers and the financial industry can empower individual investors by improving access to capital markets, increasing access to financial education and advice, and reducing cost barriers. In combination with this, these groups must take time to understand the retail investor cohort and create the products and policies that best suit their needs.

Meagan Andrews is lead, capital markets and responsible investing, at the World Economic Forum. Hallie Spear. Hallie Spear is specialist, capital markets and resilience initiatives, at the WEF.