Our views on wealth and managing our money change with age. Our aspirations and attitude to risk evolve as our investing horizons draw nearer. Or do they? Do you invest like your generation?
A study by the stockbroker Hargreaves Lansdown, has segmented retail investors into four generations to study how investment behaviour varies.
- Millennials (those aged between 18 and 35)
- Generation X (36‑50)
- Baby Boomers (51‑70)
- Silent Generation (71 and older)
Cost matters to younger investors
The study shows younger investors are more likely to use passive investment strategies. Such strategies follow an index in a prescribed way based on the argument that active fund managers are unable to consistently outperform the market. They are a much lower cost than active funds.
Generation X and Millennials are twice as likely to use a passive fund compared to the Silent Generation.
Younger investors tend to have more specific goals, like buying their first home, and they have longer to recover from any losses. Millennials have more than half of their portfolio in stocks and shares ISAs and less than a fifth in self-invested personal pensions (SIPPS).
Under-50s have twice the proportion of international shares relative to older generations. Over-70s are more focused on UK investments with an average of 81% of their portfolios held in FTSE companies and only 4% overseas. Given the international nature of UK shares, especially the FTSE 100, you could argue that they are indirectly exposed to overseas markets.
Under-35s have about an eighth of their portfolio on average held internationally and generally in smaller companies.
Longer investment horizons
As we explained in our recent article on asset allocation, you tend to reduce your portfolio’s risk as you get closer to retirement and beyond, by moving from share investments into bonds – moving from growing wealth to wealth preservation. However, the study found that the over-50s have 80% of their investments in equities.
This surprisingly extended investment in the stock market by older savers could be because assets can be shielded from inheritance tax if left inside a pension, so there is more of an incentive to leave money invested today than in the past.
We can help you make sure your investments are tax-efficient and invested according to the outcomes you want from life. Get in touch today to find out how.