Rob Everett, chief executive of the Financial Markets Authority. Photo / Supplied
Kiwis who use online investment platforms are more likely to base their investment decisions on online discussion forums and whether they have an emotional connection with a company's brand than its financial reports.
And one in three admit to having jumped into the markets because of a fear of missing out.
Those are some of the findings from a deep dive into the drivers and behaviours of around 2000 investors who have got onboard with Sharesies, Hatch and Investnow in research by Kantar Public undertaken on behalf of regulator the Financial Markets Authority.
FMA chief executive Rob Everett said it was very conscious there was a new breed of investors using new technology to access markets and the drivers for those people and behaviours might be quite different from what investors have done in the past.
"What we wanted to do was try and get some better information on what makes people go onto these platforms, what they like about them, how they react to things that happen."
Everett said it saw the rise of more people using investment platforms as a gamechanger which had exploded in popularity during Covid.
"It really is a significant part of our market now."
The platforms collectively report around 600,000 sign-ups although some users are expected to belong to multiple platforms, making it hard to determine the true number of users.
Everett said there were lots of drivers pushing people into this space.
"Interest rate lows, equity market highs, housing [unaffordability] and technology making it easy. Some of those features may disappear over time but we believe that this is not going to reverse."
Underpinning it all was a desire by investors to build wealth while learning about investing at the same time.
The research found around 2 per cent of investors were "day trading" by buying and selling multiple times in a week and a further 5 per cent were buying at selling at least weekly or fortnightly.
Around 14 per cent of investors were looking to take big risks to get a big reward - known as a "moon-shot".
"We were a bit surprised by the small number of people day trading."
He said Sharesies had told it people tended to buy rather than sell and they hadn't seen people churning their investments on a daily basis.
"This research confirms that."
Everett said it was comforted by people's understanding they should be taking a long-term view and undertaking research.
"All of those things are great. But those same people were conscious emotional biases and instinctive reactions to what they see and hear were none the less sometimes compromising their good intentions."
He said this group of investors appeared to have good awareness but were also able to admit they were strongly influenced by fear of missing out.
Nearly a third of investors (31 per cent) said they had jumped into an investment in the past two years because they didn't want to miss out and 27 per cent based their decision on a recommendation from someone they knew without doing their own research.
Everett said that information was helpful in informing the regulator about what it, the investment platforms and media could do to help people understand their natural human reactions and control for them where they can.
"That might be getting advice. That might be investing in managed funds, letting the manager take the emotion out of it."
The most common source of information people used when making investment decisions were online forums or communities, media reports, the online platforms or finance websites and their own research.
It found the conversations being had in online forums suggested the depth of analysis was limited and often investors were using the sources to confirm a hunch.
Other factors at play included how familiar they were with the company or product and whether others were investing into it. Very few got financial advice from a professional.
Everett said it was a definite feature of what was happening and it was a bit of a worry because a lot of that information was not well researched and may well not be particularly effective depending on who is providing it.
"We would sound a note of caution."
While it might be okay if investors were just putting in a small amount and doing it for fun, Everett said the real note of caution was if and when investors made large investments and invested in a way that could have an impact on the quality of their life if things went against them.