Are millennial investors facing a perfect storm?
Are millennial investors facing a perfect storm?
The Schroders Global Investor Study 2016 found that millennial investors (those aged 18-35) have unrealistically high income expectations, a worryingly short-term investment outlook, and many dependencies to support both now and in the future.
The result could see millennials fall drastically short of their investment goals.
Schroders Global Investor Study revealed:
- Millennials demand more income (10.2%) than other investors (8.4%)
- Millennials have an extremely short-term investment outlook, with 63% holding investments for less than 2 years
- Millennials are risk averse, prioritising capital preservation and a return higher than inflation when choosing an investment
- Millennials’ income is being stretched across a wide spectrum of dependencies from supplementing salary and pension to supporting children and buying houses
Is a financial storm brewing?
It is a potentially toxic mix. We live in a world where most developed nations’ interest rates are at or below 0.5%, and, in some cases, heading lower. The average stockmarket yield is just 3.8%1.
To get the higher income they demand millennials would either need to take more risk or hold investments for a longer period in order to ride out market cycles, neither of which they seem willing to do.
The major risk is that millennials are labouring under two misapprehensions:
- Their investments will grow faster than is realistic
- The pot they ultimately do build will pay a far higher income than is likely
Compounded over a 20 or 30-year time frame, the gap is potentially huge, making the mismatches between expectation and reality identified by the Schroders Global Investor Study 2016 a cause for real concern.
Stretching incomes to the limit
To make matters worse, millennials have a far greater number of dependencies than older generations over which their income is being stretched.
Schroders Global Investor Study found the main reasons millennials invested were:
- To supplement salary (46%)
- To grow a portfolio (41%)
- To supplement pension (35%)
- To provide income for children/relatives (30%)
- To buy something other than a home (28%)
- To pay for a deposit for a home (26%)
- To pay education fees (26%)
- To pay for healthcare (22%)
Yet, according to a recent Guardian newspaper study, “a combination of debt, joblessness, globalisation, demographics and rising house prices is depressing (millennials) incomes”2.
The chasm that has opened up between millennials’ investment goals, their unrealistic income expectations and short-termism needs to be addressed, otherwise we could be heading for another social and economic crisis.
For the full story and interactive infographic visit www.schroders.com/gis or download the full report below.
1. Source: FTSE, S&P 500, CAC, DAX, Shanghai, Nikkei, ASX, Hang Seng, Bovespa, Mexbol. Average forward 12-month yield across 11 indexes as at 18 May, 2016, according to Bloomberg data. ↩
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.