Young investors are taking higher risks with their investments, despite limited knowledge and experience.
As investing develops into something easier and more accessible, it seems that new entrants into the stock market are becoming more diverse; younger with more confidence in a ‘gut instinct’ approach to their investments. The younger generation currently may be finding the thrill of high-risk products tempting, as opposed to investing for the long-term. These investors are also likely to be more self-directed, with social media being their go to source for investment advice.
However, research has revealed that these new investors show little understanding of the potential risks involved in investing. Four out of ten did not seem to register that it was possible to “lose money” during investing*, and almost 40% were not able to explain their recent investment decisions**. As with most life decisions, being driven by impulse when it comes to investments rarely results in success; it is often a long-term thing, not a get-rich-quick method.
The pandemic may have led many with a desire to start investing. The past 12 months has seen an increase of almost a million investment accounts being opened, with the owner being of the typical age of 34***, significantly younger than the average investor. However, even before the pandemic, the trend in investors was growing younger.
It is important to encourage young people to invest, and to begin early to help build a decent base for their pensions and their future. However, risk should always be considered when it comes to investing, so taking the time to understand this, and the options available for all circumstances is incredibly important. Most young people don’t have money to burn – so potentially risking it all on high-risk investments could be a big waste when there are so many life challenges down the road for them that they might need that cash for.
A lot of new investing focus for these young investors seems to be towards products such as cryptocurrencies, hot story stocks, and foreign exchange, with the expectation of oversized returns. Influencers on social media could be one trigger for this increase in high-risk investments. Temptation is all around, and the fear of missing out has never been more prominent.
In the current social media age, we only have access to people’s life highlights and successes and in some cases, it may seem like wealth and riches can come overnight. Although some are lucky to have made the right moves at the right times, this is unlikely to be the norm. The truth is that in the same way a tree generates shade, building wealth and assets takes time.
And in the same way planting a tree benefits any future generations, so does spending time on wealth. Not only is it about sustaining a long-term investment, but about keeping it thriving to create generational wealth.
Investing often requires patience, commitment, and keeping calm when the market fluctuates, as it inevitably will. All investors must be comfortable with the level of risk they are willing to take. To decide, it is suggested that all try answering the following before investing:
Am I comfortable with the level of risk?
- Do I fully understand the investment being offered to me?
- Am I protected if things go wrong?
- Are my investments regulated?
- Should I get financial advice?
Young investors could consider the following options before approaching investing:
Spreading your investments across a few options could help to reduce the risk of having all eggs in one basket. Perhaps consider multi-asset portfolios or funds that invest in a basket of stocks in order to diversify any exposure.
Failing to understand the investment could be a big downfall – prevent any unnecessary falls by making sure all information is available and understood.
Having a realistic financial plan
Be realistic when it comes to assigning an investment amount set aside each month. Understand the capacity for loss available, and the amount of risk that could be taken to achieve any investment objectives.
Being wary of influencers on social media
Influencers can often pose as successful day traders, but they may know even less that you do about the subject. Unless they appear on the FCA register, then it likely they do not have the necessary permissions required to provide advice.
Especially in current times, investment scams facilitated online, and social media are becoming more prevalent. Be wary of an investment proposition that offers an unrealistic rate of return, which downplays the risks or puts any time pressure on a decision.
For more information about investing you can read our blog i-stock – Investing Made Easy (i-stock.uk), however, i-Stock does not provide financial advice and you should speak to a financial adviser if in any doubt.
This content is published and provided for informational purposes only. The information contained within constitutes the author’s own opinions. i-stock is a trading style of Tavistock Wealth Limited which is authorised and regulated by the Financial Conduct Authority, FCA No: 568089. Tavistock Wealth do not provide ﬁnancial advice. Registered Office: 1 Bracknell Beeches, Old Bracknell Lane, Bracknell RG12 7BW, Company Number 07805960. Tavistock Wealth Limited is a wholly owned subsidiary of Tavistock Investments Plc. None of the information contained in the document constitutes a recommendation that any particular investment strategy is suitable for any speciﬁc person. Source of data: Lovemoney.com, tfagroup.co.uk, Tavistock Wealth Limited unless otherwise stated.