31 May 2024

Boomer investors beware, Gen T is hot on your heels

By Richard Flynn

A shift is underway in investing. The cautious share buyer who slowly builds a portfolio and adheres to it for years may be a fair characterisation of a mature investor, but the younger generation is taking a different approach.

This generation of younger traders – Gen T – is exhibiting professional trader-like behaviours at a much higher rate than previous generations of investors, according to the latest Investment Forces research by Charles Schwab. More open and active in their investment strategies than older generations, these investors are prone to experiment and adjust their way to returns, while their predecessors are happier to watch and wait.

Tech-native Gen Z and Millennials, borne of an era where investing happens online nearly instantly and often from the palm of your hand, are almost twice as likely to adjust their portfolio daily than Gen X and Boomer investors. Younger investors are also nearly twice as likely to make changes monthly, compared to older investors.

As new investment opportunities are made available, supplemented by easy access to educational content online, UK retail investors across the board aren’t just engaging more frequently, but also with less familiar asset types, such as futures contracts and fractional shares. As open as they are active, younger investors are engaging with these opportunities at a much higher rate than their older peers, with more than a quarter already investing in Futures, and 64% willing to consider them – well above the 10% of older investors who hold Futures, and the fewer than half who currently consider them as appealing investments.

Younger investors’ responsiveness to guidance can be seen in the generational divide in the adoption of copy-trading, an investment technique where individuals can automatically align their portfolio adjustments with those of other investors. Over three-quarters (77%) of Gen Z and Millennials are already using this approach or would consider it. For Gen X and Boomer investors, who may be adhering to personal investment strategies honed over decades, less than half (49%) are using or open to copy-trading.

Levels of optimism also differ between generations. Post-pandemic, investor sentiment is improving on the whole, but for younger traders, the world seems to feel rich with opportunity. Gen T’s optimism around foreign markets reflects this worldview, with 69% believing there are good investment opportunities overseas, far above the 55% of Gen X and Boomers.

Diverging levels of risk tolerance underlie the generational divide that has emerged in investing. Older generations’ behaviours have been shaped by the ups and downs of several economic cycles and may be influenced by considerations of stability in retirement and a need to provide for dependents, while younger investors are more willing to step out of their comfort zone.

This widening gap between older and younger investors begs the question, which is the better investment approach? Gen T is still in its relative infancy, so whether its boldness translates to better performance than previous generations remains to be seen. What is clear is that each generation has something to learn from the other.

Financial services firms are offering new ways to invest every day and in the era of around-the-clock news, ‘finfluencers,’ blogs and forums, investors have more information to guide their decisions than ever before.

Gen Z and Millennials are receptive to new viewpoints and approaches, making them well-placed to capitalise on new opportunities. If older investors combine their years of market experience with a more active, open stance to investing, they may find themselves able to build a more bespoke and diverse portfolio, aligned more closely with their interests and favoured strategies.

But in this information-saturated space, there may be something that less experienced traders can learn from their older peers’ caution and adherence to time-worn, personal investment beliefs. While institutions have a role to play in providing quality educational materials that cut through the noise, developing a clear understanding of their own maxims for investing may help some younger investors ensure their openness is not a vulnerability, but a strength.

Investing is pushing into the mainstream in the UK, with Gen T at the helm. With agile trading approaches and diverse portfolios, the risks they embrace may be greater, but so too are the opportunities they may welcome.

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Richard Flynn is the Managing Director of Charles Schwab UK.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.