The global investment landscape has undergone a profound transformation in the 21^st century, driven by the rise of retail investors. This shift has been driven by technological advancements, the democratization of financial information through social media, changing demographics, and a shift in cultural attitudes toward investing. While empowering individuals financially, this movement also brings notable challenges and implications for markets and society.Traditionally, institutional investors have dominated financial markets due to their vast resources, access to information, and economies of scale. These entities employed teams of analysts and traders, capitalizing on sophisticated strategies often inaccessible to the average person. In contrast, retail investors historically faced barriers such as high transaction costs, limited access to real-time market data, and a lack of financial education. A decade ago, retail investors controlled approximately 10% of daily equity trading volume. Today they are just over 20%. While hedge funds and other institutional investors are turning cautious (and in some cases bearish) in 2025, retail investors remain very bullish. Fund flow data evidence this trend.

Technology and social media have both played a significant role in this rise in retail investing. Platforms like Robinhood expanded access through intuitive mobile interfaces. At the same time, many vendors (e.g., Charles Schwab, E*TRADE, Robinhood, etc.) shifted to business models with commission-free trading. Some have argued that vendors like Robinhood have gamified investing, which makes it feel more like online gambling or a video game.

The proliferation of social media platforms, such as Reddit, Twitter (now X), YouTube, and TikTok, has transformed how retail investors access and share financial information. Communities like WallStreetBets on Reddit became hubs for discussing investment strategies, often focusing on high-risk, high-reward stocks dubbed “meme stocks.” These communities can become echo chambers. In early 2021, shares of struggling companies like GameStop and AMC were propelled to astronomical valuations by coordinated buying from retail investors on forums like WallStreetBets. These campaigns were often framed as populist movements to challenge institutional short-sellers, turning investing into a form of social and economic protest. We are now seeing a new wave of attempted meme stock status in companies such as Kohl's (KSS), Krispy Kreme (DNUT), GoPro (GPRO), and Beyond Meat (BYND).

A get-rich-quick mindset drives meme stocks (and cryptocurrencies). Some speculators make a significant amount of money in a short period, while others lose a substantial amount. It all depends on their entry point. When looking at GameStop (GME) relative to the S&P 500 Index over the last 3 years (through July 2025), GME lost 31.34% while the S&P 500 gained 61.06%. The best strategy remains a long-term focus.

Who are these retail investors? Many are younger (e.g., millennials and Gen Z) who began investing after the financial crisis of 2007-2008. Many of them began investing during the COVID-19 lockdowns. They are skeptical of traditional financial institutions. They are generally a diverse group with increased access to financial literacy resources, thanks to artificial intelligence and the wealth of knowledge available online. They are often overconfident, prone to herding behavior, and do not discount risk in the same way that institutional investors traditionally have. They have seen their wages rise less than the cost of the things they need to buy (e.g., food, housing). Many have student loan payments and see their financial situation as strained. They view speculation in financial markets as the best chance to fix their financial situation.

The influx of retail investors has brought both benefits and challenges to market dynamics. On the positive side, retail activity adds liquidity, particularly in small-cap stocks that institutions may overlook. More participants in the market can enhance price discovery and broaden ownership of financial assets. However, increased retail participation also contributes to volatility, especially when large numbers of investors pile into or exit positions based on viral content or speculation. “Flash rallies” or “flash crashes” are more likely in a market influenced by real-time, emotion-driven trading behavior.

The retail investing revolution poses several challenges. Regulators must strike a balance between the need for investor protection and the desire to encourage participation. Issues such as payment for order flow, transparency of social media-driven campaigns, and the role of algorithmic nudges in trading platforms remain under scrutiny. Financial education is another critical area. As retail investors continue to shape market outcomes, they must be equipped with the knowledge to make informed decisions. Financial advisors who help fill this void may find a new wave of clients when they want to take their hands off the wheel and have learned that a long-term focus is better than get-rich-quick pursuits.

Author: Eric Robbins is the Associate Director for Corporate Outreach and Research and Associate Teaching Professor in Finance at Penn State Erie, the Behrend College.  

Editor: Greg Filbeck, CFA, FRM, CAIA, CIPM, PRM, Samuel P. Black III, Professor of Finance & Risk Management, Penn State Erie, mgf11@psu.edu.