Millennials are upbeat about their personal finances, with 62% believing their financial position has improved during the pandemic, according to a survey by HYMC. However, their optimism is only shared by 30% of those aged 55 or older.
Indeed, over 60% of millennials viewed the pandemic as an opportunity to invest in assets well placed to prosper in the ‘new normal’. Whereas HYMC found that “older investors were more risk-averse, with just 12% showing the same enthusiasm for new investment prospects driven by Covid-19.”
Giles Coghlan, chief currency analyst at HYCM, commented that “After a tumultuous couple of years, it’s a pleasant surprise to see that the pandemic is breeding a new generation of investors keen to do more with their money.”
And the growing influence of millennials on the world of investing shouldn’t be underestimated. Audrey Choi from Morgan Stanley reports that “as baby boomers age and begin to pass down money to their Generation X and millennial descendants, it will be the largest intergenerational wealth transfer in history, with $30 (£23) trillion set to change hands over the next few decades.”
[top_pitch]
What can we learn about investing from millennials?
Assuming that you can teach an old dog new tricks, let’s take a look at four investing habits of millennials.
1. Investing in stocks rather than cash
Stephen McBride from Forbes reports that “Tens of millions of young investors are flooding into the market. And millennials aren’t interested in owning boring bonds. This is a generation of stock pickers.”
Why are millennials shunning cash for shares? Partly, it’s because they’re considered one of the ‘poorest’ generations, facing an uphill battle to afford their first home.
Consequently, millennials prefer to invest in stocks due to their higher relative returns. AJ Bell reports the average 10-year total return is 100% for a stocks and shares ISA, compared to 17% for a cash ISA. On a £10,000 investment, the share-based ISA would have returned an additional £8,300.
If you’re looking to invest in an ISA, it’s worth reviewing our top-rated stocks and shares ISA providers.
2. Using robo-advisors for portfolio advice
Having grown up in a high-tech age, millennials “are more likely than older generations to seek out financial help from a computer than a human,” according to Greg Iacurci from CNBC.
As a result, a recent survey by Vanguard showed that millennials are twice as likely to consider using a robo-advisor for investments as young baby boomers. Robo-advisors use algorithms to create personalised investment portfolios, based on clients answering questions about their investing preferences.
Robo-advisors typically appeal to investors who aren’t confident in choosing investments but don’t want to pay for traditional financial advice. As such, they’re a cheaper alternative, charging an annual fee of around 0.25% compared to 1% for a financial advisor. This difference in fees could add up to thousands of pounds over the long term.
If you’d like to find out more about robo-advisors, we’ve produced a list of our top-rated robo-advisors.
3. Picking ESG investments
Millennials have undoubtedly triggered the growth in sustainable investing over the last decade, which has risen from $5 (£3.8) billion to $52 (£40) billion over the last five years, according to data from CNBC.
Similarly, HYCM’s research showed that 56% of millennials prioritise environmental, social and governance (ESG) investments. This compares to 16% of older investors.
Giles Coghlan commented that “Climate concerns are not going away any time soon, and younger investors are evidently particularly focused on this investment sector.”
So how do ESG funds perform against more traditional funds? According to Trustnet, Baillie Gifford Positive Change is the third-best performer in their universe of over 4,400 funds, delivering a five-year return of 174%. This shows that ethical investing doesn’t have to compromise your returns.
[middle_pitch]
4. Investing early for retirement
Despite being some years from retirement, millennials are focused on investing in their pensions. A survey by PensionBee showed that only 4% of millennials don’t have a pension, compared to 6% of Generation X (40 to 55 year-olds).
What’s more, PensionBee revealed that the millennials’ average pension pot was already £22,000, compared to £34,000 for Generation X.
Why are millennials investing in their pensions? Well, according to Unbiased.co.uk, they’re targeting an earlier retirement age of 58, compared to 61 for Generation X.
But, above all, millennials understand the power of compound growth for long-term investing. Assuming average returns of 9%, an initial investment of £20,000 would grow into £47,000 over 10 years. However, leave it for 30 years and it could increase to £265,000.
Millennials stand to make far more money by investing early.
