By Nevada Ray Posted 5/5/2021 in BUSINESS
The stock market has seen a dramatic shift in demographics over the past few years. And despite the Coronavirus pandemic, the popularity of investing with young investors is at an all-time high right now. Why? What is driving the change?
We just passed the one-year anniversary of the 2020 stock market crash caused by the pandemic. The economy had been booming, but when COVID-19 began to take its toll in early 2020, the Dow Jones Industrial Average dropped almost 3,000 points, the largest point loss in history. The Nasdaq Composite also had its biggest loss with a 12.3 percent drop, and the S&P 500 fell 12 points, its worst day since 1987.
Fast forward one year to today when all three major indexes are at, or near, their all-time highs. We know that, in part, the stock market involves the perception of value and growth as much as the actual financial value of a company. So, what caused the surge in confidence, or at least optimism?
——— ADVERTISEMENT – CONTINUE READING BELOW ———
A 2020 survey by Business Insider and Intelligence showed that 47 percent of millennials (those between the ages 18 – 35) identify as investors. Contrast that number with a survey the previous year by Money Under 30 of over 2,000 millennials were just 27 percent invested in the markets.
Clearly, the pandemic has affected the way millennials think about their finances and their future. Even young investors can remember the turbulent financial period that began in 2007 known as the Great Recession. The real estate market bottomed out, loans defaulted, and the stock market crashed.
And yet fortunes were also made during that time, a fact not lost on savvy millennials.
Reasons for the influx of young investors into the market are as varied as the individual investor but generally fall into the same categories.
This is likely the biggest reason we are seeing such an increase in young investors entering the market. No one can deny that the effects of the pandemic have wreaked havoc on the economy throughout the world.
Millennials are especially vulnerable right now. Approximately 33 percent have either had their work hours reduced or lost their jobs outright, thanks to COVID-19 and the resulting lockdown. Many are also struggling to repay their student loan debt as they sustain housing and living expenses that have not decreased. Caught between the past recession and their own futures, young people are even more motivated to plan for their future.
According to a Money Under 30 survey of more than 2,000 millennials, the majority of those surveyed reported a shift in their financial focus. Many were already financially responsible, investing primarily in savings accounts. However, since COVID-19, they began expanding their investment portfolios, strategizing their savings plans, and limiting their expenses.
Young investors who were already investing in the market are leaning more towards stocks, with over 37 percent investing in dividend-paying stocks and bonds. Twenty-one percent report earning income from stock portfolio appreciation, and only 18 percent from real estate.
Gen Z members (loosely defined as those born after 1996) are also dipping their toes into investing waters. As a whole, they have $143 billion in spending power. Depending on their age, even teenagers are investing now for various reasons, such as:
That brings us to the next reason young investors are choosing to invest now.
The Robinhood app pioneered the no-commission no-fees model that is now standard with most other online brokers. Also, investors can start with a very modest amount, making entry into the investment world much easier, although not without risks.
During the first four months of 2020, which was the height of the Coronavirus outbreak in the U.S., Robinhood reports gaining three million new users. Robinhood also allows trading in cryptocurrency, an additional appeal to young investors.
Apps Make it Easy
Many mobile investing apps are available today, making it super easy for tech-savvy young investors to wade in. These investors are also familiar with tech companies, allowing many to select their favorite tech company stocks.
As reported in the Business Insider and Insider Intelligence’s recent Master Your Money Invest & Thrive Survey, 47% of millennials call themselves investors. Among these, 34% said that being aware of new investment apps played a part in their decision to invest. It’s also worth noting that young investors typically don’t do the research themselves, unlike older generations. The oldest generation, sometimes called the “Silent Generation,” are far more likely to research their investments.
And last, but by no means least on the list, is why young investors buy the products they do, support certain companies, and where they choose to invest in the market.
Many millennials are strongly driven by their values. With some notable exceptions (Apple, Microsoft, Google, Facebook, and Disney, for example), they are more likely to invest in smaller, entrepreneurial, values-driven companies than bigger corporations.
They desire to be socially conscious and socially responsible, make a difference in people’s lives, and positively impact their environment. In the world of investing, this is called “impact investing.”
Interest in impact investing has grown in recent years, fueled by younger generations. In 2013, only 31 percent of millennials in the United States reviewed their portfolios to ensure that their investments included companies that made an impact. That number more than doubled, spiking to 78 percent in 2018. Robo-advisors will help them choose investments that align with their conscience.
Not to be left out, Gen Zers are also concerned about impact issues like the environment, social, and political issues and are investing accordingly.
With the 2007 Great Recession still in recent memory, many young people see this as the opportunity of a lifetime. They may be right, providing they have the long-term view in mind and plan on holding onto their stocks to ride out the current financial downturn. And, of course, millennials are usually concerned about the long term.
As always, some technologies are positioned to make a lot of money now that allow greater opportunity but are riskier.
When the stock market crashed in 2020 because of COVID-19, many people saw this as an opportunity to invest, causing the popularity of young investors to reach an all-time high. They understood the value of buying low and waiting for the market to bounce back, which it always does – eventually.
But with the market still so volatile, this pattern will likely continue as fallout from the pandemic continues, i.e., lost jobs, continuing restrictions on businesses, less spending money, etc. Combine this with major tax hikes on the imminent horizon for the first time in over 30 years, as recently announced by the Biden administration, and we will have to wait and see what happens.
No one knows for certain what the future will bring, but we likely have a long way to go before we hit a serious economic upturn. Traditionally, this is when savvy young investors buy low and hold on, but fortunes have been made – and lost – on less.