The some nine million Canadians born between 1980 and 2000 who are commonly referred to as Generation Y or the Millennials represent a large demographic market with considerable financial clout and investment tendencies that differ from older generations.
Some recent studies indicate Millennials are not what many people think they are and when it comes to money they are savvy, independent, skeptical, conservative, want to be in control and take a long-term perspective.
“What we have is a classic mismatch between perception and reality,” says a survey conducted for Merrill Lynch’s private banking and investment group in the United States. “There are differences between this generation and its predecessors (and) for the most part the differences are subtler and more complex than some might think.”
For one thing, Millennials are starting to invest for the future at a much younger age than their parents’ generation.
The average Generation Y investor made their first investment at age 20 compared to age 27 for Baby Boomers, says the TD Investor Insights Index, which examined the outlook of Canadian investors and external factors influencing their investment decisions.
In the last year Millennials invested on average 18 per cent of their income but they reported they would like to have invested closer to a third. Millennial investors also were more likely than Baby Boomers to say they would increase the proportion of their income invested if stock markets improve.
The index also found that retirement planning and saving to buy a home were top of mind for Millennials despite the competitive housing market. Half of them said saving for retirement was their top investment goal followed by saving to buy a house (44 per cent), travel (43 per cent) and achieving financial independence (42 per cent).
“Today’s young investors have many competing financial priorities, making it a challenge to balance short and long-term goals and navigate the investment options best suited to them,” says Cynthia Caskey, vice president and portfolio manager with TD Wealth Private Investment Advice. “Tax Free Savings Accounts are a good choice for young people because of the flexibility they offer and there’s a wide range of options for how to use the money – from storing it in a high-interest savings account to investing it in more volatile instruments such as mutual funds, equities or listed securities.”
Both studies found that Millennials want to remain in control of their investments.
More than 70 per cent in the Merrill Lynch survey described themselves as being “self-directed” in their investing, perhaps because they have a hard time believing that advisers have their best interests in mind.
In the TD survey 18 per cent said they learned about saving and investments on their own and 48 per cent said they manage their portfolios directly online.
Millennials employ a variety of investment strategies. Forty per cent take a long-term, buy-and-hold approach, 34 per cent have a mix of index and actively managed funds, 31 per cent regularly buy and sell to maximize gains, 27 per cent are primarily invested in actively managed funds to beat the market, and 15 per cent are primarily invested in index funds and ETFs to match the market.
“Today’s young investors are savvy when it comes to building and managing their portfolios,” says Alfred Chung, director of TD Direct Investing. “With mobile technology those who embrace the self-managed investing approach can retrieve real-time stock quotes, access markets and research, and place real-time trades from their smartphone.”
The Merrill Lynch study also found that Millennial investors tend to be skeptical and don’t take the advice or recommendations of financial professionals at face value. “It is not enough for Millennials to accept recommendations based on vague references to experience or past performance: they want to be shown the math,” the report says. “Millennials simply seem to question whether paying for financial advice is worth it.”
Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.
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