How have investors fared through COVID?

A recent report by money watchdog ASIC, shows COVID saw more Australians get serious about investing, often driven by the need to grow a second income. One in five new investors just wanted to ‘make some quick money’, and others started because they had more time to research markets.

Aussie shares turned out to be our preferred investment through COVID. More than seven out of ten investors purchased shares – far more than the one in three who invested in international shares or exchange traded funds (ETFs).

 Our second favourite investment over the past two years has been cryptocurrencies, with close to one in two (44%) investors dabbling in digital currencies at some point.

For the record, only about one in five people have invested in property since 2020.

It is the way we managed our investments through COVID that’s especially interesting. Rather than taking a long term approach, many investors were rapidly turning over their investments – in some cases, daily.

We also failed to diversify. Fewer than 20% of investors held at least five different investments.  

In many cases, investors simply didn’t understand the nature of risk. Only 20% of crypto owners considered their investment in digital currencies to be ‘risk-taking’.

So, how have investors fared over the last two years? In some cases, not very well.

Among those who invested in higher risk assets such as contracts for difference, 42% lost money; 29% lost money on shares; and 27% failed to make a profit on crypto. It is worth noting though that ASIC’s research was carried out in November 2021, when cryptocurrencies like Bitcoin were at a peak. I suspect the result would be very different if the survey had been conducted a few weeks later when Bitcoin tanked.

The asset class which saw the smallest number of investors lose money was exchange traded funds. This reflects the benefit of diversity that ETFs bring to a portfolio.

Either way, ASIC’s new findings confirm some old rules.

Only invest in something you understand – and that means knowing the risks. For growth-style assets like Australian and international shares be prepared to invest for the long term. Rapidly turning over shares will make your broker rich, while leaving you out of pocket. And if you don’t have the time or capital to invest in a wide variety of shares, ETFs can be a one-stop-shop for instant diversity.

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.