Young Investors Are Filling Free Time with “Free” Investing

June 10, 2021
Author: Ben Berey

The other week, my friend from college visited me and brought along her boyfriend I had not met. We sat down for a nice lunch by the water, exchanged pleasantries and touched upon the usual topics of where we’re from, what we do for work, etc. But the next topic of conversation was something that has become a relatively new staple whenever I meet someone—the GameStop and cryptocurrency mania.

Prior to COVID-19 turning our world upside down and leaving young people at home with little to do, investing was not at the forefront of our minds, let alone our conversations. Especially my own. I didn’t think I had the time, nor the money, to seriously get into investing. To me and many others in my generation, investing was for those who had significant sums to put into the market. But with a lot more time suddenly on my hands and the rise of low- or no-cost brokerage apps such as Robinhood, investing quickly became an area that more of the mass population dove into. In fact, according to data from Envestnet Yodlee, stock trading increased by about 80% among those earning between $35,000 and $75,000 annually from March to April 2020, likely due to both boredom and receiving government stimulus checks.

With the rise of these free investing apps and sudden excess of free time, younger generations have never been more engaged in their finances. However, it is imperative that new investors be educated on the risks of investing and encouraged to build strong investing habits that discourage them looking for the next get-rich-quick scheme (looking at you, Dogecoin). One easy way for the younger generation to establish a portfolio is through robo-advisors, which have seen exponential growth over the past few years. According to data from Cogent Syndicated, significantly more affluent Millennials reported using a robo-advisor in 2020, now totaling 75%. Robo-advisors such as Betterment and Wealthfront offer low-cost investment strategies tailored to each investors’ individual risk tolerance, life stage and goals, among a number of other factors. Automatic transfers at designated times (weekly, monthly, etc.) allow investors to grow their balances without lifting a finger, which can be incredibly useful to build wealth without sacrificing time and resources. In fact, CNBC produced a short documentary about the rise of robo-advisors and the role they will play in personal finance into the future.

And just last month, Fidelity took a step further to cater to another atypical investor group: teenagers. The investing giant announced a new initiative, the Fidelity Youth Account, which allows 13- to 17-year-olds to freely trade stocks, ETFs and Fidelity mutual funds. In order for teens to create an account, their parents must also have a Fidelity account. The new platform is aimed at providing an educational opportunity, allowing teens to learn about investing and the market under the watchful eye of their parents so there is not an overt amount of risk-taking. This new initiative proves that firms are looking far into the future to service new investors as they come into the market.

While we may not know how the rest of the world is going to look as we come out of the other side of the COVID-19 pandemic, we can say with certainty that the next generation of investors has been significantly altered. As a result, it is imperative to uncover what makes this sect of the population tick when it comes to their financial and investing habits. By using research as a catalyst to understand the distinct needs of these new investors, companies will be well positioned to offer tailored solutions that truly get at what appeals to the younger generation. As these new investors grow into more assets and become a larger proportion of the population, firms that can adapt to and be in-tune with these investors’ wants and needs will be best positioned to service them.

 

 

Our financial services team is full of experts with deep knowledge of the industry. We understand the issues and are guiding clients through disruption every day. Click below to send us a note and see how we can work together.

Send Us A Note

Ben Berey
Analyst

Ben is an analyst in Escalent's Financial Services division. He has developed his career in market research by working on a wide variety of projects, specializing in the financial services sector. Prior to joining Escalent, Ben partnered with top asset managers, banks and retirement plan providers to help them optimize their customer experience programs and deliver concise insights and recommendations to enhance customer relationships. At Escalent, he has expanded his expertise in the field by managing branding research, product development, message positioning and market intelligence research in order to deliver effective, meaningful and actionable insights to his clients. Ben received his bachelor’s degree in Economics with a concentration in Finance from Tufts University.