For years, retail investors were often ridiculed by some segments of Wall Street, labeled as “dumb money.” This term typically referred to individuals who traded based on hype, chased trends without regard for company fundamentals, or reacted sluggishly to significant market movements. However, recent analyses indicate that this perception is rapidly changing.
A comprehensive examination revealed that retail investors significantly outperformed two of the most popular managed index funds, the SPY and QQQ, which aim to replicate the performance of the S&P 500 and the Nasdaq 100, respectively. In 2025, retail investors accounted for a staggering $5.4 trillion in trading activity in stocks and exchange-traded funds (ETFs), marking a nearly 47% increase from the previous year. This surge represents the most substantial retail trading volume observed since at least 2014.
Joe Mazzola, head of trading and derivatives strategy at Charles Schwab, expressed a desire to challenge the notion of retail investors being categorized as “dumb money.” During a recent investor education event in Anaheim, California, attended by around 800 clients, he emphasized that retail investors have evolved and should be seen as a formidable market force.
Historically, many Americans have engaged in the stock market primarily through managed funds in retirement plans, such as 401(k)s. However, the last decade has witnessed the rise of mobile trading apps, zero-commission trading, and social media communities focused on investing. These developments have fostered a new do-it-yourself trading culture among individuals.
The COVID-19 lockdowns were pivotal in this transformation, introducing a wave of new investors—many of them young and inexperienced—who utilized investing platforms like Robinhood. Their enthusiasm led to the “meme stock” phenomenon, propelling the prices of companies like GameStop and AMC Entertainment.
Beyond meme stocks, a prolonged period of strong market performance provided a favorable environment for more people to enter investing. The S&P 500 has recorded annual losses only three times since 2015. By early last year, the transfer of funds from checking accounts to investment accounts reached its zenith since 2021, as some younger investors, unable to afford housing, directed their savings into stocks.
According to a report from JPMorgan Chase, the influx of money from individual investors surged by about 50% from the end of 2023 to early 2025. Steve Sosnick, chief strategist at Interactive Brokers, remarked on the shift in market dynamics, asserting that retail investors have become a significant force, overtaking the previously dominant institutional investors.
Notable retail investors like Frank Sabia, who began investing in 2018, exemplify this new breed of traders. Sabia has enhanced his market knowledge through online communities and seminars, ultimately crafting his own trading strategy.
In April, he capitalized on a dip in the stock market following an unexpected announcement from former President Donald Trump regarding tariffs, which sent the S&P 500 into a quick downward spiral. “I just bought the dip,” he stated, noting that retail investors collectively purchased more than $5 billion worth of stocks during that brief period.
Retail investors also demonstrated their resilience on October 10, buying into the market after another significant dip related to tariff threats from Trump.
This year, retail trading activity has reached unprecedented levels, especially earlier in the year when the S&P 500 hit historical highs. Notably, retail investors significantly impacted the price of silver by acquiring record amounts of silver ETFs.
While many retail investors stick to stocks and ETFs, some have ventured into riskier territories. Options trading, which can yield higher returns but also increase risks, amounted to approximately $650 billion in trading last year and has seen consistent growth since at least 2019.
Young investors like Noah Goodwin highlight the potential and pitfalls associated with options trading. After realizing quick gains from a timely options purchase on Nvidia, Goodwin faced setbacks with later miscalculations, illustrating the volatile nature of this trading strategy.
Sosnick remarked that while the “buy the dip” mentality has been profitable for many, it can lead to mechanical trading decisions lacking a thorough consideration of risks.
Investors have also been observed strategically balancing their portfolios between risky trades and longer-term investments. Andy Hu, a financial analyst, shared that half of his investment portfolio is in the SPDR S&P 500 ETF Trust, while he actively trades micro-cap stocks for short-term gains. However, he adopted a more cautious approach toward the end of the year as market dynamics shifted, opting not to trade amidst pullbacks.
As retail investors continue to redefine their role in the markets, it’s evident that they are moving beyond the simplistic label of “dumb money” and taking a more informed, proactive stance on their investments.
