A generation ago, the popular image of an “investor” was that of a middle-aged man in a suit, reading stock tips in the newspaper who then proceeds to call their broker. Today, that image couldn’t be further from the truth.
Investors are younger than ever, and they are using even more sophisticated technological tools. These tools can identify good investments, automatically balance portfolios in order to manage risk, and allow investors to buy stock right from their smartphone.
Such tools are being used at a huge scale – a June 2020 survey revealed that 75% of Gen Z-ers and millennials are planning to invest in this way.
This boom in investment among young people can be partially explained by how much easier it has become to invest, but it’s also due to another factor: our world and economy are now more dynamic and volatile than ever, and young people know this.
Investing is not just a way for them to make money – it’s a necessary part of their future. In this article, we’ll look at why that is the case, and how young people are meeting this challenge.
A Changing World
In order to understand why so many young people are investing so much of their money, it’s instructive to look at the world from their point of view.
The generation who came of age shortly after the 2008 crash does not trust “professional” money managers and investors with their money, regardless of our opinion on the matter.
These people saw what happened in 2008, and fear that traditional ways of investing are unsound.
At the same time, younger generations have entered an employment market that is also very different from those of the past. It has become very unusual for a young person to have a “job for life”.
Instead, ambitious young people think of changing their job every few years, and even take unpaid sabbaticals to learn new skills or deepen their experience of the world. In this context, contributing 10% of your income to a company-manager retirement fund doesn’t make that much sense.
Many young people see a future in which the US economy, for instance, is overtaken by that of China. And in that future, it makes sense to diversify your investments as much as possible.
At the same time as faith in traditional investment vehicles has been falling, young people have been granted access to more information than the generation that preceded them.
Consequently, the internet has allowed young people to become experts in fields that were previously only open to a very few people.
To become a bond trader 20 years ago, you had to have the right education and the right social connections – nowadays, it means spending a few months reading the relevant websites.
Alongside this explosion of information has come a diversification of the tools available for investing. Even quite recently, calling a broker in order to buy stocks was deemed necessary.
Nowadays, anyone can invest from their smartphone, and even amateur investors can use advanced algorithms and automatic trading strategies that were previously only available to most sophisticated institutional investors.
At the broadest level, these two trends have joined together to produce an investment landscape that is completely unprecedented.
More people are now investing in the stock market multiple times, and these investors are definitely more informed than any of the previous generations. Ultimately, the younger generations are the ones leading that change.
For those over the age of 40, this boom in investment might seem like little more than a historical curiosity. But young people are not investing for fun – this generation takes their financial future very seriously.
In fact, this very uncertainty about their financial future has made younger generations such effective investors.
Due to being unable to be certain if the economy will grow inexorably, this generation has internalized many of the investment rules that we’ve all heard before, but that many of us have forgotten.
Examples of this can be found in many places. To take just one, it’s notable that young people’s investment portfolios are generally highly diverse.
In fact, they are often more diverse than the portfolios of more experienced investors with far greater funds.
Young people are keen to invest not just across a range of stocks, but to diversify far beyond their “home” stock market – buying stock on foreign markets, trading in exotic currencies, and buying cryptocurrencies.
Another example is the degree to which the younger generation understands the value of time. This is a luxury that these individuals can afford.
It goes without saying that starting to invest at the age of 20 already gives you a huge advantage.
But if you look at the types of investment products that are popular among young people, you’ll see that they are far more sensible, or in other words, “mature” options than you might expect.
A good example of the above is the rise of robo-advisor retirement funds. These funds are very popular among millennial investors, and most of the money managed through them is in low-risk portfolios.
So Instead of looking to make quick gains through speculative trading, many young people prefer to take a low-risk option which allows their money to grow slowly but steadily.
For many young people, investing in the stock market is not a hobby – it’s a necessity.
Millennials, in particular, are relying on these investment returns in order to retire comfortably, and young people are far more confident when it comes to making investment decisions than the generations that came before.
Clearly, young people have the luxury of time when it comes to allowing their investments to grow. But as we’ve seen, even experienced investors can learn from their approach.