Where do the next generation of investors go from here?
An intriguing advertisement for an investment platform popped up on my social media feed this week. Not only did it feature a picture of a female investor, but she had prominent tattoos on both arms.
Inked or not, there’s nothing that precludes women from investing. But this was an ad for Hargreaves Lansdown, the UK’s biggest investment platform, which usually features pictures of besuited middle-aged men smiling back, somewhat awkwardly, from its marketing material.
The likely reason for this sudden swerve? To appeal to the “next generation” of investors, who have been shaking up global stock markets from the comfort of their bedrooms using Reddit messaging boards and trading apps.
The allure of day trading has been building since the start of the pandemic, fuelled by social media, low-cost apps and a captive audience of locked down twenty-somethings willing to take a punt.
Last week, videos of young bandanna-wearing pundits on Reddit went viral, sending shares in obscure companies like GameStop into orbit. This week, things appear to be crashing back down to earth — and I fear many first-time investors will be burnt on re-entry.
It’s been a wild ride. However, as someone who has been urging young people to get interested in investing for most of my career, I feel more positive about this turn of events than you might expect.
Let’s face it — the younger generations stand to experience the most unpleasant long-term financial side effects from Covid-19.
Rising unemployment and lower expectations of future earnings are the immediate problem, but since the financial crisis, big doses of central bank stimulus have pushed up asset prices, making owning your own home an ever more expensive and distant prospect.
Those who get on the property ladder cannot expect the stonking great price rises that their parents and grandparents enjoyed. In fact, they will be hobbled by them — 40-year mortgages are fast becoming the norm. Even if there is an inheritance to be passed down, wealth taxes could take a bigger bite out of this in future.
What worries me is that this bleak outlook will tempt younger investors who figure they have nothing to lose to opt for riskier forms of speculative investing.
I got this impression after appearing on my first Instagram Live event for the Financial Times last month (for the untutored, this is basically a live video Q&A on social media where you are pelted with emojis). What did young investors most want to talk about? The answer was bitcoin, which side of the Tesla trade they should be on and other ways of making a quick buck.
Risking looking like a dullard, I said that a strategy of “get richer, slowly” was a better thing to aim for than “get rich quick”. That got a few hearts.
I then expressed arch scepticism about cryptocurrencies (funnily enough, this produced a wave of hand clap emojis and messages from people who agreed with me, as well as scowling faces from those who didn’t).
If you’re considering such an investment, reflect on this. Ever since I was on that live chat, my social media inboxes have filled with requests from crypto firms offering “influencer partnerships” if I talk to my followers about their products. One even offered me 30 per cent “commission” on any sales I was able to generate.
If you ever see anyone called Claer Barrett hawking crypto on Instagram, I can assure you it will be a deepfake video. Given the huge power of social platforms to punt unregulated investments, this is an area where financial regulators need to get up to speed, and fast.
I’m also concerned about the rise in online trading of CFDs — “contracts for difference”, a risky type of derivative. One of the biggest investment platforms carries the statutory warning that 67 per cent of retail investor accounts lose money when trading CFDs, yet judging by the message boards, this doesn’t seem to be putting many people off. With casinos closed under lockdown, I guess their customers had to pop up somewhere.
Still, I am hopeful that those who have flirted with trading under lockdown may develop a more lasting relationship with investing.
Retirement may seem a more distant problem for younger investors, but here is one area where recent events could hand them an advantage of sorts.
Everyone from Generation X and younger needs to be comfortable with investing for themselves. There’s been a lot of learning about investing under lockdown — even losing money can be a valuable lesson — and will hopefully spur some into thinking about a longer-term strategy.
Why is this so important? Unlike older generations, we will all need to be investors in the future, and active investors at that.
Plenty of people coming up to retirement age today are often very uncomfortable managing their own investments. Yet the decline of final salary pensions and the poor value of annuities mean that managing your own investments in retirement will become the norm for most people — the majority of them unadvised and unprepared.
This is a huge risk for individuals to manage, yet like the spread of the pandemic, it’s a risk that won’t become obvious until it’s too late to do much about it.
I would like to think that the younger you are when you start investing, the better you’re likely to get at it as you age — as well as feeling more comfortable taking decisions and managing risks.
There’s mounting evidence this is already starting to happen. This week, Hargreaves Lansdown revealed that surging numbers of young investors had not only pushed up profits, but pulled down the average age of new customers opening accounts to just 37 years. Back in 2012, the average age of a Hargreaves customer was 54. This is an encouraging statistic.
Investments on mainstream platforms can be held within the protective tax wrapper of an Isa or Sipp (a self invested personal pension). Those seeking an instant return should remember there’s nothing like tax relief — or the power of matched employer contributions — to give your investments a flying start.
I hope the new generation of investors see the benefits of building balanced, diversified portfolios — perhaps allowing themselves to take some calculated risks on a portion of their holdings too.
And as more of them come on board, it would be fantastic if the bigger retail platforms could ape the newer commission-free online trading sites by adjusting their fees a notch or two lower.