Follow your heart or your head? Your Financials has advice for millennial investors
Millennial investors invest differently than most of our clients because (1) they like to do it themselves, and (2) they want to invest in what they believe in. It takes a lot of effort for financial advisors to get them on board. However, there are many reasons why the younger generation should consider professional financial help.
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Granted, the tools by which we can search for information have grown at an awesome rate over the past 40 years, and educational standards have risen too. Yet there is an abundance of research which suggests financial education can still be greatly improved. No matter how much more skilled and better educated millennials are, understanding what financial products are and how they behave is simply not for everyone.
That is why we recommend seeking professional advice. This incurs additional costs, leading many millennials to wonder if it can't be done cheaper. Good question. But if you do it yourself to save costs, there are sometimes restrictions in trading moments, or your order will only be executed on Wednesday, or there are choice restrictions that can be invested in, etc. Or you can choose from the entire shop window but no one warns you that your choice can be a very toxic cocktail. And then when you've started and the market isn't participating, do you always pay attention?
What matters is that you achieve results and that you run an appropriate risk for your situation for which the costs are acceptable. With sound financial advice and reliable, effective asset management, your money gets the attention it deserves.
But I believe in it!
Scientific fact: of all stock pickers, only 2% have done better than the market as a whole.
Portfolio theory for investors was shaken up about 70 years ago, after which "baskets" of investments were made from certain types of shares. For example, growth stocks and value stocks which behave differently during economic cycles, and spreading investment across sectors, regions, currencies. Modern portfolio theory (supported by a Nobel Prize) demonstrates putting your eggs in different baskets brings superior results compared to putting them all in one.
We have clients who invest with money that they "have left over" which does not make up a large share of their total assets and on which they are therefore not dependent. We also have those who, in less than 10 years, really have to make ends meet after a long working life as an entrepreneur and where, except State Pension, there will be no income. A different game entirely.
Many millennials want their investment money to do something for the world, too. They inform themselves extensively and then want to "participate" in the relevant "story". Often, the ways to get in do not always prove sufficiently thorough, the technology is still to be proven, or there are 10 other competitors working on the concept. For these reasons, it can be difficult to assess the whole idea of the business model and the way to make an investment without guidance.
That's what specialists are for. Only invest in what you can explain, what is transparent, and of course have a positively assessed business model with a positive return expectation by relevant experts. The story needs to be tested. Invest in a small part of each business so that your capital is divided into more heroes than (the inevitable) drownings.
A word of encouragement
If investment management is not your area of expertise, let yourself be assisted. You don't have to disavow your principles by involving others who have made it their profession. You can get started faster as an investor if someone separates the wheat from the chaff for you, who can select based on your specifications and pays attention to costs and quality of management. And more importantly, who can also point you to a better alternative than you found yourself because it is their job to keep up with the market.
If you would like to receive free, one-to-one advice, register for the “ask-me-anything-financially” event on 16th October. First come, first serve!