New breed of investors seize the day through sharemarket education and information.

Most younger investors were in school when Jeff Bezos first launched his online bookseller Amazon, and the idea of getting books delivered seemed nifty and convenient. Then Amazon started selling CDs and DVDs, quickly followed by toys and games. 

Twenty-five years later, Amazon needs no explanation. Its shares are high on the wish list of any investor, experienced or otherwise. Amazon is an outlier, but its trajectory is a reminder of overall economic growth, despite market shocks such as the Global Financial Crisis. 

In fact, the GFC was a time when many young investors came of age, finishing their studies or starting their career in an environment where opportunities seemed scarce. Following the job cuts and a period of stagnation came recoveries that gave birth to new companies while the world’s largest tech stocks delivered astonishing growth.

Informed optimists 

Nowadays, young investors are in the midst of a pandemic that poses even greater threats than previous downturns – but the difference is the awareness that this group has of the opportunity and growth that will inevitably occur on the other side. 

The attitude of many young investors is if they got through it then, they could get through it again. And this time, they don’t want to miss out. They’re aware that if this much change has happened since 2008, it’s only going to accelerate once we get through this current crisis. 

It’s a well-worn trope that out of every crisis comes incredible opportunity. Since many young investors recognise this, I call them “Informed Optimists”. 

Different investing strategies to previous generations 

The difference for today’s young investors is the democratisation of entering the market. Younger investors don’t need to have reserves of cash to get started; they have easy access to a wealth of information; and they know that working hard and leaving money in a low-interest savings account is unlikely to give them the control, freedom and experience they crave. 

Even a little bit of knowledge on investing principles means younger people are much more fee-conscious, realising how quickly their returns can get eaten up by hidden costs. Additionally, their attention is fractured, and they lean towards passive (index) investing via Exchange Traded Funds on ASX.

Sustainability is an important issue to young investors who are extremely conscious of environmental and social values. Many want to blend profit with their own values into their investment strategy, and their loud demands are being answered with investment options like sustainable or ethical ETFs. 

As well, companies want to be perceived as ethical and are proactively addressing sustainability issues, to attract younger investors. 

Time-saving tools that predict the future 

This is a generation who want to invest their money, not their time. Investing, like anything else, is possible because of the tools and information at their disposal. There’s already a plethora of blogs, forums, news sites, and personal finance “influencers”, and engaged young investors are even taking free or paid online courses and gathering information that would have previously taken years to acquire. 

Many young investors are using tools that project how much they’ll need to reach their goals and are reverse engineering the process, so they know exactly how much they should invest and when. Once they are comfortable with investing basics, shorter-term speculators are picking stocks themselves through – often misleading – online advice, and apps that use gamification to make the process seem fun. 

Longer-term investors are also using technology like robo advisers, but they prefer building long-term diversified portfolios that balance risk and reward. 

Future trends 

The effect of COVID-19 and other world events has intensified the mistrust younger people have in the institutions that their parents took for granted. The other effect is a solidified expectation of cyclical downturns and boom-to-bust stories. 

This means many more younger investors will see wealth management as a self-directed exercise, but will lean towards platforms that use air-tight technology and low fees to optimise their preferred strategy and minimise risk. The expectation of risk has already seen more young and first-time investors interested in ETFs, and even the advent of things like cryptocurrency won’t stop the diversification trend. 

This is a generation who want a slice of many investment pies, and the likely scenario is more businesses who help them acquire all these slices in a cheap and easy way. 

When we inevitably rise from this downturn, young investors will I hope benefit from the next generation of market growth. They may not be so young when the next downturn occurs, but when it does, it’s unlikely to scare these informed optimists, and they’re likely to just keep on investing. 

The only disturbing trend I can see is the rise of misinformation and armchair experts. Investors, young or otherwise, need care to avoid this phenomenon. Still, every generation will always have a group of people chasing and predicting the next Amazon.