The UK D2C investing market has seen a rapid influx of new investors since the start of the pandemic. Many of this group have been short-term speculators, trying to earn a quick return in volatile markets.

First-time investors often associate investing with gambling, choosing to put their money into higher risk investments: cryptocurrency, CFDs and fast-moving individual shares. Our recent consumer research for UK D2C: Market Update found that 41% of new investors hold cryptocurrency, compared with just 17% who invest in funds.

The new cohort of investors is skewed towards younger age groups. They have less capital, but few qualms about risking it. Punting £1,000 on cryptocurrency with the hope of tripling it in a matter of months is genuinely exciting. But losing £500 or even all one’s spare capital may not feel like the end of the world.

‘Diversification’ has negative connotations for many in this group, because diversifying bets is a mathematically losing strategy for gamblers. New investors almost certainly don’t understand that buying an index tracker is essentially different from covering every number on a roulette table!

The excitement of punting on high-risk investments is the honey that direct platforms have exploited to win new customers. The danger is that many of these new investors will burn their fingers – deterring them from genuine investing for many years to come. So, it is in direct platforms’ interest to convert this cohort into long-term investors by explaining and encouraging diversification.

As investment professionals we’re all familiar with the benefits of diversified portfolios, but most of these new customers aren’t. The chances are that they prefer a bet on the 2.15 at Kempton Park (or England to reach Euros final) and think that’s what investing is all about. Switching this mindset will likely prove fiendishly difficult.

More information on our UK D2C research is available on our website.