Well… young investors are back in the market, but are they too late?
Conventional wisdom says that a 25 year old individual has the ability to take on more risk than another individual who is 62 and retired, due to the fact that the younger person still has their whole career ahead of them and many years of earning potential. The retiree on the other hand has to be much more selective with risk and always is thinking about the long term, steady results because they will be needing the money soon or more immediately than the other individual. That being said, there is always a limit and threshold where the reward does not justify the risk and, according to Openfolio, Millennials are struggling to find returns on their risky investments.
Vanguard’s move into PE may change the landscape forever
Private equity has been growing in popularity in recent years as more and more big-name funds and institutional investors dive in. Now even indexing giant Vanguard is out to take a piece of the PE pie. During a panel at the Morningstar Investment Conference this year, Fran Kinniry of Vanguard, John Rekenthaler of Morningstar and Read More
Earnings: Young investors vs older investors
According to 2,500 data from users, young investors are earnings less than three times older investors, who are implementing more steady and passive strategies. Openfolio cofounder, Hart Lambur, attributes this finding to the fact that Millennials tend to try an “swing for the fences” more and buying “disproportionate amounts of stock in their favorite companies”.
Taking a deeper look into portfolio makeup, the average Millennial portfolio contains 61% of single company stocks and only 39% is made up of mutual funds or ETFs. Older generations, on the other hand, turn to mutual funds and ETFs to make up 51% of their portfolios and stocks get exposure of 49%. Openfolio’s data on Bitcoin is even further evidence of the disparities between older and younger generations’ investment philosophies: the site found younger investors generally had 3.3% of the portfolio exposed to Bitcoin and only 0.2% of older generations decided to add the virtual currency to their portfolio. Openfolio does have good news in that investment returns generally improve over time, as the investor turns more and more conservative.
The thought process of young investors
As someone who started investing when I was 14, I have some first hand experience on the thought process of young investors. While I whole heartedly disagree with the “get rich quick” mentality, I am going to have to blame pundits and media for always running stories on huge investment returns and monster profits. This inhibits a mindset upon Main Street that they should get in on the “gold rush” as well, but it usually ends in absolute disaster. Generally speaking, I would have to say the hardest obstacle for new investors, young and old, is the psychological aspect of trading and investing. Your analysis may be correct, but if your holding sees a steep correction before the anticipated rally, that same investor may turn to their emotions and get out too early, get in too early, or whatever the scenario may be. My advice to new investors is to have reasonable expectations and learn, learn, learn. Till this day, I am still picking up books and learning something new. Do not let your ego get in the way because the market will always make a fool of those that think they are invincible.