This article is from our October 2020 edition of MarketWatch.
10th November, 2020
The Covid-19 crisis has already left its mark on history. Now, as we emerge into a new and changed world, we may find ourselves reflecting on life – where we are, where we’re going, and what’s important to us. Each of our experiences has been unique, but undoubtedly, we’ve all been affected. Importantly, this has been, first and foremost, a health crisis, and for a long time it felt difficult to draw any positives from it. But as we return to a “new normal”, is it time to think about how our lives could be better? Whether that means spending more time with loved ones by working from home, or simply slowing down and recognising the unsustainable nature of some of our habits. Interestingly, while retail outlets closed, retail investing surged. Is this the next generation of investors seizing the opportunity to focus on wealth accumulation and financial security?
Before the pandemic, living through a period of economic growth, we had been comfortably enjoying the freedoms it afforded. “The boom is back” rang through our ears. For Millennials who came of age during the Global Financial Crisis (GFC), scars of the past have re-opened, and the financial security blanket is ripped from us once again. Obviously, consumption is essential for a healthy economy and the country needs people spending and enjoying themselves. A recent survey in the US carried out by Moneyunder30 noted that 69% of millennials have been spending less during the pandemic, and 45% will continue this trend after it ends. 60% of those surveyed have become more focused on their finances.
The GFC had a profound impact on us, holding us back from getting ahead financially, perhaps making us fearful of the markets. The pandemic and market crash have only raised those fears again. We may feel sceptical of investment products and are naturally more cautious. This isn’t necessarily a bad thing, but it shouldn’t be a complete deterrent to investing, especially when it’s so important for ourselves and our families into the future. A recent UK study by finder.com found that 3 out of 4 Millennials (born 1981 – 1996) and Gen Zers (born after 1997) were planning to invest in at some point, with 66% planning to do so in the next 12 months. Will this trend be the same for younger Irish investors?
After living through two boom-to-bust cycles, it’s becoming clearer that these are changes that we must become accustomed to throughout our lives. Yet only now with more mature eyes have we begun to assess our means of managing further shocks in the future. We’ve all had to take a crash course in resilience, and the impact on our wellbeing has been hard to manage. Making decisions on things that we can control may provide some comfort in the future when these crises inevitably happen again. The lockdown has led us to slow our spending, re-think our priorities and ask whether our money is working for us.
It takes a psychological shift to occur. As consumers, we’re effectively making someone else money, whereas as owners we become beneficiaries of other peoples’ spending. Owners of stocks such as Tesco and Amazon saw the value of their investmentsn rise during the lockdown. Rather than be at the mercy of financial cycles, it’s time for us to build our own financial security. There’s plenty of good advice available around us. However, we do need to be careful of some of the more attention-grabbing sources out there.
During the market sell-off and rebound, a digital herd emerged. Younger investors in the US took advantage of the situation, with trading volumes increasing by c. 300% during the initial stages of lockdown, according to Robinhood. For some, this may have replaced the betting markets that disappeared when sports were shut down. With the stock market down 30% or more, and oil prices even going below zero, it naturally felt like a good opportunity to get involved.
New investors piled into stocks, oil and gold, complicated options trades, and even some bankrupt companies. There were big wins, and it may have been easy to get caught up in the excitement, but the betting impulse did have tragic repercussions for some. Spending beyond our means can also be a problem when it comes to our investment portfolios.
For Millennials, having faced two severe recessions before the age of 40, experience would suggest that we should be more conservative in nature. However, striking the balance between fear and opportunity in our lives is something we’re having to get used to. Looking back at history, crises are frightening experiences, but economies and markets recover. If we’ve armed ourselves with knowledge and the right blend of caution and confidence, then we can recover stronger too.
At Davy, we take a multi-year approach and focus on long-term wealth accumulation. Those of us who have been furloughed, let go, or had our hours reduced should of course prioritise immediate living needs above investing. However, if like some, your personal finances have allowed you to put some money aside, then this is as good a time as any to put it somewhere it can serve you into the future.
WARNING: Forecasts are not a reliable indicator of future results.
WARNING: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. These products may be affected by changes in currency exchange rates.