Quick Answer: A retail investor is an individual person investing their own money (not a business or big institution). They get stronger legal protections than wealthy institutional investors, including requirements that financial advisors put their needs first and ensure investments match their situation.
Retail investors handle 30-37% of daily trades, up dramatically from just 6-7% in 2019. And this shift isn't temporary. Commission-free trading and better technology opened the door for millions of small business owners who couldn't participate before.
How Does a Retail Investor Differ From Institutional Investors?
Remember when you had to pivot during COVID? You made quick decisions while big chains needed corporate approval. That same agility advantage applies to retail investing.
Here's what you gain as an individual investor:
- Stronger legal protections: Financial advisors must follow fiduciary duty by law.
- Instant decision-making: Adjust your investment strategies during slow periods without committee approvals.
- No benchmark pressure: You answer only to yourself, not shareholders or fund investors.
Your agility beats their size every time. While institutions have information advantages and lower fees, you can make decisions instantly without explaining to boards.
What Types of Investments Do Retail Investors Make?
Just like you diversify revenue between dine-in, takeout, and catering, smart investing means spreading money across different types. The same strategic thinking you use to manage hourly teams applies here: balance risk and opportunity.
Here are your main investment options:
- Stocks and ETFs: Provide growth potential with daily liquidity, now available through fractional shares starting with any amount.
- Bonds and bond funds: Work like your reliable catering contracts, providing predictable income when business revenue fluctuates seasonally.
- Mutual funds: Professional management handles diversification while you focus on running your business.
- Retirement accounts: IRAs and 401(k)s with tax advantages, especially valuable when your small business generates variable income.
These options give you the tools to build wealth systematically, just like building a reliable schedule for your hourly teams.
What Do Most Business Owners Get Wrong About Investing?
The biggest mistake? Overconfidence. You've successfully built your small business, which can create false confidence that your business skills automatically translate to investment expertise. ScienceDirect research from 2025 shows this leads to excessive trading and concentrated positions, which is exactly the opposite of what builds long-term wealth.
The biggest traps successful small business owners fall into:
- Emotional trading based on social media tips: Investment positions created during peak social media attention realized average returns of -8.5%. Wait a while before acting on any investment idea from your network.
- Putting too much in one investment: You already have most of your wealth tied to your small business. Don't compound this risk by putting remaining savings into individual "hot stocks."
- Jumping into complex investments without understanding basics: Start with simple, proven approaches before moving to specialized strategies.
These three traps have cost retail investors billions in lost returns, but they're completely avoidable with the right approach. Avoid these pitfalls by focusing on legitimate investment companies offering low-cost index funds.
How Does Homebase Help You Make Better Financial Decisions?
Reliable investing starts with reliable business operations. Homebase gives small business owners clearer visibility into labor costs, schedules, and day-to-day performance, making it easier to understand cash flow and determine how much you can consistently set aside for long-term goals. Tools like Employee Scheduling and labor reporting help stabilize staffing and control the expenses that directly influence financial planning.
With predictable operations and accurate data, you can make investment decisions more confidently. Homebase reduces administrative work and frees up the time and clarity you need to focus on your financial future.
Get Homebase free for six months.
Sources and Methodology
At Homebase, we rely on up-to-date, authoritative sources to ensure every Question Center article reflects accurate guidance for small business owners. We start with primary information from federal regulatory agencies, verify details using investor-protection rules and educational materials, and use reputable financial resources only to supplement—not replace—official guidance.
For this piece, we referenced federal investor education resources from the U.S. Securities and Exchange Commission (SEC), FINRA’s investor protection and suitability guidelines, and foundational materials from SIPC and other government financial education programs.