It’s been widely reported that millennials have resisted investing, instead favouring low risk savings accounts and term deposits to save for retirement. This risk-averse approach can have a dramatic effect on returns over time. An analysis using a simple online savings calculator puts the potential cost of avoiding market investments in the millions by the time a current 25-year-old millennial retires at 65. Take a look at the dramatic difference in retirement savings after a 40-year period.
Strong evidence of millennials investing during the pandemic
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 (a year or a lifetime ago, depending how you look at it).
A spike in new accounts at online brokers show that young and inexperienced investors saw the coronavirus downturn as an entry point into the world of market investing, as opposed to a time to stuff money under the mattress.
Kindred’s partner, Qtrade, saw new account growth for its award-winning platform Qtrade Investor leap by an unprecedented 314% in the first quarter of 2020; this was at a time when stocks experienced the fastest market decline, accompanied by a sudden transition from high investor optimism to widespread worries, and the worst first quarter in history. However, some younger consumers have embraced the economic downturn as an opportunity to get into the market, looking in particular at technology stocks that feel quite familiar to this digital native generation.
Other platforms in the industry are experiencing similar surges in interest, notes the Globe and Mail. “At the heart of the [do-it-yourself] investor surge is a younger demographic drawn to markets for the first time. In March alone, the average age of Qtrade’s investor base dropped by eight years, with the 25 to 35-year-old segment driving the shift.”
In addition, automated algorithm-driven investment planning platforms, also known as robo-advisor services, such as VirtualWealth, appeal to younger investors with modest investment funds. The millennial generation makes up almost 47% of VirtualWealth’s clientele. Over half of new clients signing up now fall in the 24 to 39 age group.
Why are millennials migrating to DIY investing?
DIY investing has become increasingly mainstream for a variety of reasons perhaps including the proliferation and greater understanding of ETFs and the online-based platforms that sell them. In addition, the internet is full of articles, tutorials, and videos on how to invest, perhaps encouraging younger investors to manage their own investments.
Digital investment platforms have also lowered investment minimums making it easier to get started with a small deposit. Plus, there are no time-consuming meetings required.
Many of these DIY investors may also prefer investing through apps, such as Qtrade Investor’s mobile app, which offers instant investment options and real-time market monitoring.
Millennial savings habits
According to a recent 2020 Deloitte Millennial Survey, millennials expressed a strong commitment to financial responsibility and saving, and favorable views of the responses to the pandemic by government, business, and their own employers. A key takeaway from the study found that long-term finances are a top cause of stress, but more than half of millennials, and nearly half of Gen Zs, are saving money.
While millennials may have high levels of education and are comfortable with technology, they also face significant challenges when it comes to saving and investing their earnings. Importantly, in the urban Canadian market, some millennials are putting off investing because they view saving cash for a down payment on a home as a more urgent priority. The Ontario Securities Commission reported in 2017:
- Though millennials have higher incomes than Generation X had at their age, millennials also have been squeezed by shelter, transit, and education expenses that have risen faster than incomes;
- 68% of millennials who don’t invest said they have “other financial priorities,” and 53% cited debt as a specific obstacle to investing;
- In addition to paying off debt, many millennials identified homeownership as a key financial priority;
- 59% of millennials who don’t invest said they don’t understand enough about investing to get started;
- 57% of millennials who don’t invest said they’re worried about losing money in the financial markets—even though younger investors generally are best placed to wait out periodic downturns and reap significant long-term gains in the markets—and 30% said they “don’t trust big banks or investment firms” with their money.
Getting started in the investment world can be intimidating; however, some research and the right platform can make it a whole lot easier. And, if needed, help is available for the asking—Kindred’s Financial Planning Team offers professional advice to all members.
Excerpted from the Central 1 blog “Millennials Are Investing More Now Than Ever Before – Why?”, originally published August 10, 2020.
Mutual funds and other securities are offered through Qtrade Advisor, a division of Credential Qtrade Securities Inc. Mutual funds are offered through Qtrade Asset Management Inc. The information contained herein is provided for general informational purposes only and is not intended to provide, and should not be relied upon as providing, legal, accounting, tax, financial, investment or other advice, or a solicitation to buy or sell any securities. Economic and market conditions are subject to change.