How millennials are investing during the COVID-19 crisis
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Is this the end of the $17.90 smashed avo and eggs on toast? The re-rejuvenation of the much criticised FIRE movement?
The market turmoil may or may not fundamentally change breakfasting in Australia but lessons in investing are being absorbed by the millennial cohort, now aged in their mid-20s to late 30s, says one expert.
Millennials are more educated about stocks and investing than their predecessors were 12 years ago when the global financial crisis hit, but some think they know more than they do, says Dale Gillham, chief analyst of financial services company Wealth Within.
“I am finding many in their 20s using apps such as Raiz and Pocketbook as they are simple and they do not have to think about it. That said, over the past couple of years we are seeing more venture into direct shares as they simply can’t afford property,” he told Stockhead.
For many millennials this is also their first economic crisis and Gillham is seeing investment strategies ranging from panicked “dump and run” to head-in-the-sand conservative.
“Many are attempting to not just bottom pick stocks in this volatile period but attempt to bottom pick the wrong types of stocks, attempting to make a fortune. It is highly likely they will get caught out and this will cost them dearly,” he said.
“The investors who are dangerous are being fuelled by ignorance and a distinct lack of knowledge, with the majority overestimating their level of competence. Worse, they do not know that they do not have the knowledge and skills to do what they are attempting.
“Those who are overly conservative have basically put their head in the sand preferring to ignore everything until well after the dust settles. They suffer both poor returns and opportunity costs as you cannot get into shares going up if you are still holding shares that are falling away.”
The “wrong type of stocks” are volatile small caps which are very high risk at the best of times but now even more so, Gillham says. His preference is for top 50 blue chips.
As Centrelink’s new online queues grow longer, many millennials are already reassessing their spending and investing habits.
Questions are already being asked about whether millennial spending will return, or whether this generation has been shocked into cancelling AfterPay accounts in the same way as they have credit cards. CBA said on Monday credit card spending dropped by 15 per cent last week.
One area where people are cutting costs and pulling money in from savings is investment app Raiz (ASX:RZI), which saw funds under management drop by 20 per cent in a month.
CEO George Lucas says 64 per cent of the Raiz customer base are millennials.
And while adherents of the FIRE movement (financial independence, retiring early) are struggling as markets decimate investments set up to allow ‘retirements’ in their 30s and 40s, according to a New York Times report, this crisis may have sparked a new enthusiasm for financial independence.
The Australian FIRE thread on Reddit includes a number of self-proclaimed millennial “noobs” looking for advice in the last month on how to invest in the sharemarket.
Gillham believes investors are much more educated now than during the GFC: the iPhone was launched in 2007 and today data can be downloaded and trades made via a myriad of apps such as Commsec or Selfwealth.
“Now the under 30 do not go anywhere without their smartphone and are learning everything from it whether on the train, in a cab or anywhere we can get a signal,” he said.
“The challenge with this is that whilst you may be getting educated, what these under 30 years olds are learning is very hit and miss especially when it comes to the stock market.”
Matt Leibowitz, founder of US stock investing app Stake, says just over half of Stake’s users are in the 25-40 age bracket.
Longer term investors in that age bracket prefer to hold Tesla, Apple, Facebook, Amazon and Microsoft.
The traders are fans of more exciting ETFs, which during the current market turmoil include the Short Term VIX ETF, ETFs that short the S&P500 and the NASDAQ, and a 2x leveraged ETF — an instrument that can double your profits, or double your losses.
Leibowitz says Stake has seen a spike in investors and traders actively using the app.
“The ETFs have been much more active since 1 January, with lots of investors looking to trade these to get short exposure on the market and on volatility,” he said.
With 75,000 customers and a launch in New Zealand this week, there is clearly demand not just for local investments but for access to the volatile US market as well.
For those driven into the market by high property prices, fear of missing out, or their first foray into investing, Gillham has three pieces of advice: don’t speculate on what you don’t know; buy only quality stocks based on solid analysis; and always protect capital by using stop losses.