How Millennials are investing

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New reports suggest that Millennial spending and investing during the COVID-19 pandemic is vastly different than the way Millennials managed their money in 2019. Major online brokers have seen growth in accounts spike when stocks experienced the fastest bear market and the worst first quarter in history. But some younger consumers have embraced the economic downturn as an opportunity to buy stocks, most notably, technology stocks. And more importantly, most of these investments were done by robo-advisors.

Before the pandemic was that Millennials didn’t invest that much because they had other financial priorities, such as saving for a home and paying off education-related debts. But we can mention some other factors which restrained Millennials from investing, namely that they had small knowledge about investing but huge worries about losing their money as their parents did in 2008. According to a CFA research when it comes to making decisions about investing, Millennials are not so self-assured.

So what changed during the pandemic?

According to a recent 2020 Deloitte Millennial survey, Millennials expressed a strong commitment to financial responsibility and savings, and favorable views of the responses to the pandemic by governments, business, and their own employers. According to a Money Under 30 research of more than 2,000 Millennials revealed that the majority have recently shifted their attention towards securing their financial futures. They found that most of them are limiting expenses, optimizing their savings, and expanding their investment portfolios. For them, economic uncertainty is likely nothing new, because most of them experienced the last Recession. But the fragility of their financial prospects started to shift their attention towards wealth-building and financial literacy, even as they struggle with the uncertainty of our times. They are motivated to learn how to future-proof their finances, they believe that knowledge is power – and therefore money.

In turn, it is no surprise what they think about wealth:

  • Over 66% of Millennials are interested in learning how to invest their money.
  • 61% believe that this is a good time to start investing.
  • 20% plan to start investing.
  • 27% are already investing in the markets.

Those already investing in the markets lean towards stocks:

  • Just over 37% actively invest in dividend-paying stocks and bonds.
  • 21% earn income from stock portfolio appreciation.
  • 18% invest in real estate.

While Millennials’ fear of missing out (FOMO) is a familiar catchphrase, it’s also a way of life. The appetite for efficiency and value, for doing things better and faster to get more for their time and money extends to financial technology too. Therefore, it is not a surprise that many of the new Millennial investors turned to DIY investment tools and robo-advisors. For example, Wealthsimple’s total number of clients increased by 54% in March 2020. In April, it has seen 7,000 new users per week. According to Ben Reeves, Wealthsimple’s Chief Investment Officer, 55% of those new clients are under 34 years old. And Justwealth also appeals to younger investors, Andrew Kirkland, Justwealth’s president, said the generation makes up about a third of his clientele. The bulk of the new clients signing up now fall in the 24 to 35 age group. So, to sum up DIY investing has become increasingly mainstream because of numerous factors like digital investment platforms lowering investment minimums making it easier to get started with a small deposit. As a real plus for the Millennials, there are no awkward or time-consuming meetings required, everything is done at the client’s convenience – and efficiently. Additionally, the Internet is filled with articles, tutorials, and videos on how to invest, which could also encourage younger investors to manage their own investments.

Another interesting trend is that Millennials tend to invest in cryptocurrencies more than any other age group. A survey conducted in the United Kingdom of affluent Millennials discovered that 20% have invested in cryptocurrencies. This is significantly greater than the national average of 3%. Moreover, it is higher than 29% for Millennials with over £75,000 in investable assets. The growing millennial preference for cryptocurrency trading is less surprising than it would seem. The members of this generation distrust the stock market and prefer app-based digital investment alternatives like cryptocurrencies as it fits those preferences. But there are some other key reasons why millennials are switching towards cryptocurrencies:

  • In the past, Bitcoin has consistently earned higher returns as compared to stocks, except in 2018. Even if a person bought Bitcoins at its all-time high and held it for life, her portfolio would be positive.
  • Millennials are comfortable considering Bitcoin as a retirement plan, because of two main reasons.
    • Firstly, millennials are a long way off from retirement so they can afford to take some risks.
    • Secondly, they have lived through the housing crisis which was the result of bankers and brokers playing fast and loose with traditionally “safe” investments like stocks and houses. Bitcoin’s volatility and risk are not a big concern.
  • Millennials grew up with the evolution of the internet and have been molded by it. They prefer paying with digital wallets and through online banking, so Bitcoin, being the currency of the digital world, seems far more natural to a millennial.

While Millennials have been hard hit by the pandemic, this may be the most agile generation when it comes to economic resilience. Moving forward, it is expected that an even greater proportion of Millennials will enter the market and favor crypto investments.

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Sources:

https://www.economist.com/leaders/2020/10/24/in-defence-of-millennial-investors

https://www.cfainstitute.org/-/media/documents/support/future-finance/millennials-infographic-2018.ashx

Deloitte_Global_Millennial_Survey_2020.pdf

https://www.central1.com/blog_posts/millennials-are-investing-more-now-than-ever-before-why/

https://www.moneyunder30.com/millennial-spending-and-investing-during-covid-19 

https://www.fintechmagazine.com/digital-payments/millennials-are-driving-bitcoin-economy

 

 

 

 

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