The traditional way of investing has lost its appeal with the younger generation, who have turned their attention to more fashionable and thrill-seeking asset classes. However, experts have warned that while it can be fun to spread your savings into new ideas, the old ways might be best for long-term plans.
Younger investors have found a penchant for alternative investments: asset classes that have been deemed to be more exciting and, at times, more profitable such as art, non-fungible tokens and of course cryptocurrencies. This has been spurred on by better access to new ideas, but more worryingly, sharper marketing from those selling these often unregulated investments.
Recent research from the Financial Conduct Authority (FCA) only emphasised this point, with young investors 18 per cent more likely to take investment tips from celebrities than they were dating advice. The FCA said it was also concerned at how younger investors were approaching markets. Only 2 per cent had a timeframe of more than five years when investing and 14 per cent had no timeframe at all. Less than a third had any specific long-term goal in mind.
It is not as if the concept of investing is not of interest to ‘Generation Z’, defined as those born in the mid-to-late 1990s. Four in five 16-25 year olds said they invest a portion of their income, according to a survey conducted by the Royal Mint last year. This compares with four in 10 Baby Boomers, those born between 1946 and 1964, according to separate research conducted by Hargreaves Lansdown. However while investing is more embedded, what they can afford to buy, and where they put their cash, is very different.
So why have young investors turned their backs on the stock market? Social media has played a huge part. According to the Royal Mint, 23 per cent of ‘Gen Z’ are followers of financial influencers, or ‘finfluencers’, on social media. This has meant many young investors have adopted a ‘get rich quick mentality’, which the stock market is not always good at doing.
Benno Guenther, financial risk management lecturer at the University of Cape Town, said young investors had been promised they would “get rich very quickly without having any knowledge or any money”. “I think people can be quite susceptible to it,” he added. The Royal Mint survey found that two in five Gen Z investors admitted to having a ‘get rich quick’ mentality where they expect to double, or even triple, their savings in a short space of time.
The drawbacks of following advice on social media is that the risk of losing money is high. Almost two thirds (64 per cent) of young people have lost out by adopting this mentality, the Royal Mint found. So while youngsters are often promised high returns, they tend to lose more than they gain.
The FCA issued a joint warning with the Advertising Standards Agency on finfluencers over the risks of promoting ‘get rich quick’ schemes. Tom Selby, head of retirement policy at AJ Bell, says: “One of the big challenges facing UK regulators is that, when it comes to social media, finfluencers are often unregulated individuals pushing unregulated products in a world which is incredibly hard to track and monitor. In the worst-case scenario, finfluencers could encourage followers to invest in scam schemes and end up losing everything.”
Crypto madness
In the past few years, cryptocurrency has grasped the minds of young people. Its autonomy and decentralised nature is an appealing factor, especially for those who find themselves disillusioned with the traditional ways of finance and government controlled currencies. However, they tend to be volatile and go through periods of fluctuation.
Myron Jobson, senior personal finance analyst at Interactive Investor, says: “Our research found that 45 per cent of young adults aged between 18 and 29 have made crypto their first investment of choice, with an alarming number funding this through a cocktail of credit cards, student loans and other loans.”
This trend is likely to continue with 21 per cent of 18-24-year-olds intending to buy cryptocurrency in the near future, according to Finder, an investment website. The trouble here is that young investors could fail to make those fast profits that were promised to them by finfluencers as well as full into serious debt. Such major blows could put off young people from investing in the future.
An investor’s perfect portrait
Investing in art has also become more and more attractive to young investors. Collecting a tangible asset is seen as a way of expressing values and beliefs and a way of supporting the creative community. According to a 2022 Study of Wealthy Americans, of art collectors who have purchased a piece in the past 12 months, 83 per cent were young collectors.
Masterworks, a provider of such services, has benefitted from technology making it easier to invest in niche asset classes such as art. It acquires a piece of artwork, establishes a separate company for it through registration with the Securities and Exchange Commission, and then offers shares to individual investors. The minimum investment required is determined based on someone’s total investment portfolio.
“If you invest in art or an individual painting, you will go on a very interesting knowledge journey that has benefits both intellectually and culturally,” says Evan Bear, executive vice president at Masterworks. When Masterworks sells the painting, each investor shares the profit or loss
According to DollarSprout, the art market delivers returns of 7.6 per cent to investors. Symbolism is not the only benefit of investing in art. The likes of Masterworks have experts doing their research. But buying art means taking your chances on an illiquid asset which makes it difficult to value and sell.
The value of art is often determined by factors such as the artist’s reputation, demand from buyers and rarity of the piece. Such factors can be unpredictable and subject to changes in the market.
