Is this an investment revolution?

Are we witnessing a paradigm shift in the way younger people regard finance? The GameStop/Reddit/Robinhood phenomenon that’s been all over the media recently seems to have ignited excitement in a previously disenfranchised and, possibly, slightly bored demographic.

Certainly, what happened to GameStop was unprecedented. The share price started 2021 at $19 and got as high as $483. At one point the company was worth close to $34bln, bigger than half of the companies in the S&P500! No wonder the smaller investors who collectively made this happen got excited.

There’s also an ongoing interest in cryptocurrencies – another ‘new’ investment route that is grabbing headlines and the attention of young, less risk-averse investors.

How should seasoned members of the investment and financial advice professions react? Are these just passing fads or are they something that will drive younger investors to engage with the notion of saving and investing over the long-term?

Riding the wave

My own view is that while popular investments are rising, the more inexperienced investors will want to ride the wave and are unlikely to seek the advice of anyone. This is certainly what I’m seeing from within my own family.

One young relative has decided to divert the £150 a month he was investing into an ISA and the £4,000 he’d saved into an online app for buying stocks and shares, trading in tech and oil stocks. He’s done well so far, increasing his £4,000 investment to £6,500 but this good feeling he’s getting could quickly head south should his investments plummet, especially as behavioural psychology shows investors feel losses far more keenly than they enjoy wins.

New research commissioned by The Marketing Eye/SurveyGoo highlights that two in five 18-34 year olds have become more open to the idea of long-term savings and investments since the pandemic started. Just over a quarter are tempted by cryptocurrency; just under a third by stocks and shares; a fifth by buy-to-let property and a similar number buy gold.

For financial advisers, it would be easy to dismiss what’s happening as being outside of their scope for concern. The majority of advisers have older, more risk-aware clients who are not interested in betting the family silver on new-fangled investment routes.

If this is your view, I would raise a note of caution. Many of these younger investors will undoubtedly benefit from intergenerational wealth shifts in the coming years. They are learning a lot about the investment world from what’s going on and, while their investments are rising at least, they will have growing confidence about experimenting with different strategies.

Opportunity knocks

When things do go wrong, that’s when they’ll be ready to speak to qualified advisers who can help them reduce some of the jeopardy. For advisers who see themselves in business over the longer term, now is the time to think about how they can engage with these investors in a relevant and meaningful way.

ESG is one area that can open doors with younger investors. Tapping into their concern for the future of the planet and providing them with options to make their money work for the good of the world is where advisers can excel. PortfolioMetrix has been running ESG portfolios for four years now and the results show this is an area that offers good potential to investors, if approached in the right way.

While the lure of the DIY investment route appears to be a threat to financial advisers, it could well turn out to be a major opportunity. Financial education has been woeful in the past but we are now witnessing younger people fired up and excited about what their money can do.

Harnessing that enthusiasm and channelling it into investment options that will deliver tax efficient, risk-aligned returns could open the door to a new type of client – one that is savvy, engaged and hungry for the wisdom of experts.