What do young investors want?
For a while now, I have heard a few finance graduate friends in their early 20s say “I want to start investing, but don’t know how and where to start’’. When a finance student raises such queries, it’s comparable to a medical student entering an operation theatre and asking which instruments to use.
When us youngins hear about investing in stock markets, a mental image of men in dapper suits throwing out technical jargon (DRPs, Options, Hybrids, etc.) that many don’t understand comes to mind. All we know is they are talking money! So what do young investors really want?
Sharemarket Perception and what the young investors want
As per the ASX 2014 Share Ownership Study, in Australia 15% of the total youth aged 18-24 and just 25% aged 25-34 own sharemarket listed investments. One of the biggest reasons identified for not investing is that they don’t know much about the sharemarket. Another misconception is that a huge amount of money is required to enter the sharemarket. Post GFC, the inclination towards investing in managed funds has also reduced as the older investors suffered losses in those types of investments. So for the young investors it is a dilemma as to where to start and how to diversify.
Youth needs
Broadly, after graduation, there are 3 types of youth;
– those who know exactly what they want to do in life
– those who haven’t decided yet
– those who ‘kind of’ know what they want to pursue
All of them have one thing in common, everyone wants to be financially stable or at least have regular cash flow to live the dream, be it travelling, paying off student loans, savings for a home, etc.
Today’s Gen Y, we want to have it all. Yes it may be wrong to stereotype all Gen Ys as one, but for argument’s sake let’s consider this assumption. We want fast results, we are go-getters and not afraid to take risks. However when it comes to investing and financial independence, our risk appetite stumbles a bit and I feel it should. These are not easy decisions to make but with the correct attitude, information and expert’s help, the risk level can be reduced.
So ideally, we want to save for the future, while enjoying the present and we want all of this, fast! All these wants contradict each other at some level. To save for the future, you have to sacrifice a part of your present income which means sacrificing a part of your present living unless you’re born with a silver spoon or have a billion dollar start-up idea!
Need for mixing it up
Historically, Australians love dividend paying shares and there has been a tradition of dividend payouts by the big companies. This is because of the tag of being a safer company and investing in them provides an income. However this does not mean you adopt a defensive strategy by investing in dividend paying stocks. The past few weeks of the reporting season saw 65% of companies increase their dividend by a small amount whereas 14% of the companies cut dividends by a large amount (The SMH, August 29, 2016).
Even if a person starts investing at the age of 25, there remains another 30-35 years of working life to save, invest and spend as well. A rough calculation of risk taking in investing is the ‘100 – Age’ formula. Say if you are 25, 75% of your investments should be stocks. Conversely, if you are aged 45, then you should have 55% in the share market. This is because when you are young and you lose money on your investments, you have less responsibilities to worry about and more time to build your wealth back up.
I recently read a book “Financial Passages” – by Mercantile Mutual Funds Management which truly said that ‘any money you set aside now has plenty of time to work hard for you’. The earlier you learn by taking risks, the better you will get at investing with time.
If you are thinking about investing however not sure where to start, contact the team at JBS today to discuss your personal circumstances.