Global stock markets had a tough time in 2015, with concerns over China’s economic health and low international oil prices triggering jitters among investors.
Global stock markets had a tough time in 2015, with concerns over China’s economic health and low international oil prices triggering jitters among investors.
The volatility in the market, not only evident globally but also in South Africa, is a trend that will likely persist over the long term.
It is this precarious scenario that has seen bearish sentiments emerge towards the stock market among potential investors, some of which are millennials, young adults between the ages of 21 to 34.
Although history has shown that stocks over the long term typically post decent returns, it seems as though millennials are not as keen to invest in the stock market as the generations before them.
While the older demographic is usually willing to participate in the stock market as a means of building financial security and wealth, millennials are more risk averse and opt to invest in cash as a safe option.
You don’t have to look far for reasons behind why most millennials shy away from the stock market. During their lifetime, they have witnessed two stock market crashes in global markets: the technology bubble in 2000 and the 2008 global financial crisis. These two significant events have resulted in millennials distrusting the stock market’s ability to generate returns from their investments, says Sygnia Asset Management investment analyst Leevania Naicker.
“In general, there is a smaller percentage of millennials investing in the stock market which, to a large extent, can be explained by short-termism – where there is more focus on short-term satisfaction at the expense of long-term goals. We expect a larger portion of older people to be invested in the stock market because they are usually planning for retirement,” Naicker tells Moneyweb.
But the lifestyles of millennials are vastly different to their older counterparts. Millennials are staying single for longer and in some cases having children at a later stage, which results in them having more disposable income. For millennials, this disposable income is largely deployed on experiences rather than the accumulation of assets, says Naicker.
“The millennial generation eats out more often than any other generation – more than generation X age 35 to 49, Z 15 to 20 and baby boomers 50 to 64. The way in which they spend their money and their savings patterns are different. Baby boomers would buy a house and a car with their savings while millennials would prefer to spend their money on experiences,” she says.
While less concerned with material possessions, it is not surprising that millennials spend and invest in a non-conventional way.
Millennials had the highest spending rates on products from companies exhibiting sustainable qualities compared with older generations. Impact investing – where investments are made into companies that are not only amassing profits but are also generating measurable social and environmental benefits – is becoming popular among millennials.
“They millennials are willing to buy products from companies that they perceive to be socially responsible. Millennials value companies that develop their employees and have a positive impact on society, but still acknowledge that businesses exist to make money.”
On the other hand, their older counterparts typically have a less rounded view about the purpose of business and believe companies exist solely to generate a profit.
Unlike following the more traditional way of investing, by first enlisting the services of financial advisors, most millennials prefer to explore their options themselves and use robo-advisors: online services which provide automated computer algorithms-based investment advice. “Millennials prefer to research everything online, which is why robo-advisors are becoming more popular,” Naicker explains.
Sygnia plans to launch the Sygnia RoboAdvisor later this year – a free tool which will allow users to quickly understand what is required to meet their savings objective and choose a suitable investment product.
Safe and affordable investment products are what usually pique the interest of millennials. Naicker says opening a tax-free savings account is one of the simplest ways in which millennials can invest, where they choose a product that suits their risk appetite and save money by not having to pay taxes. Tax-free savings accounts were introduced last year, enabling individuals to invest up to R30 000 a year.
For millennials, time is on their side, which is an advantage when investing. “It’s better to be in the stock market than not, even at this age. Over time, the short-term losses that the stock market face are compensated by the returns earned in the good years and the compounding effect over the long term,” Naicker adds.