Retail investors close out one of their best years ever. How they beat Wall Street at their own game

Core Viewpoint - Retail investors have demonstrated significant growth and sophistication in their trading strategies, achieving strong returns in 2025 by effectively buying the dip during market downturns, challenging previous perceptions of their investing capabilities [2][3][12]. Retail Investor Performance - Retail investors capitalized on market dips, with 2025 being the second-best year for dip-buying since the early 1990s, according to Bespoke Investment Group [3]. - Individual traders purchased over $3 billion in equities on April 3, 2025, during a market decline, showcasing their willingness to invest amid volatility [7]. - Retail investors' portfolios outperformed institutional baskets tied to artificial intelligence and software, indicating a higher profit-to-loss ratio [5]. Shift in Investment Focus - From May 2025 onward, retail investors shifted their focus from single stocks to exchange-traded funds (ETFs), particularly the SPDR Gold Shares (GLD), which saw inflows surpassing the last five years combined [4]. - The gold-focused ETF experienced a record surge of over 65% in 2025, reflecting the growing interest in commodities amid market fluctuations [4]. Market Sentiment and Strategy - Retail investors have been more accurate in their market reactions compared to institutional investors, particularly during emotionally driven trades [9]. - The "TACO trade" strategy, which encourages buying stocks during market downturns caused by policy decisions, has gained traction among retail investors [10]. Evolution of Retail Investors - The participation of retail investors surged in 2025, with flows increasing over 50% from the previous year, reaching levels not seen since the meme stock craze of early 2021 [13]. - More than one-third of 25-year-olds moved significant sums to investment accounts since turning 22, indicating a growing trend of younger investors entering the market [12]. Changing Perceptions - The narrative surrounding retail investors has shifted from being viewed as "dumb money" to being recognized for their increasing sophistication and ability to make informed investment decisions [14][15]. - Retail investors are now seen as central to market dynamics, with their strategies aligning more closely with those of institutional investors [18].