Future-proof investing strategies from today’s 20-somethings

BY: SEAN SANDERS

GROWING UP in the technological boom of the 1980s and early 1990s, and coming of age during the 2008-2009 global financial crisis has given millennials a wholly different approach to saving and investing than their parents and grandparents.

… millennials’ familiarity with technology allows them to embrace nascent investment opportunities in an effortless manner

Millennials are technology-native global citizens who are not afraid to venture into international markets and brave alternative investment opportunities, such as cryptocurrencies, exponential technologies, and emerging asset classes. At the same time, millennials’ familiarity with technology allows them to embrace nascent investment opportunities in an effortless manner.

When compared to their peers, affluent millennials—those who earn more than R100 000 monthly or have more than R16 million in net assets—invest with a forward-looking mindset. They look for growth opportunities by investing their money in some of the world’s most valuable technology companies and ‘unicorns’ that are driven by exponential technologies, along the likes of Tesla, SpaceX, Netflix, Uber, Apple, Microsoft, Amazon, and Alibaba, rather than solely focussing on traditional investment port-folios.

MILLENNIALS EMBRACE A TECH-FIRST APPROACH TO INVESTMENT
The Millennials and the Future of Money report by Edelman found that millennials, particularly affluent ones (who own R2 million in investable assets or earn an annual income of at least R1.4 million) eagerly embrace disruption, as well as emerging FinTech products and services.

“Affluent millennials are bullish on new technologies and industry disruptors for achieving their investment goals,” according to the report. This is a growing trend, as close to a quarter of the study’s 2 500 respondents were already using an AI-assisted robo-advisor for financial advice as of late 2019.

The report also found that a quarter of millennials already hold cryptocurrency or use it, and close to a third are interested in doing so in the near future, with 63% claiming that cryptocurrencies are a better investment than gold—particularly in a volatile economy.

Perhaps due to the fact that they have a better understanding of how blockchain and crypto assets work, three-quarters of millennials believe that technological innovations help to make the global financial system more secure.

Wealthy millennials are also more inclined to close their knowledge gap about these alternative asset classes, because they understand that this will make them less vulnerable to hackers or fraudulent schemes.

ALTERNATIVE ASSET CLASSES ARE THEIR LONG-TERM INVESTMENT STRATEGIES 
Sixty-five percent of millennials put their earnings into cash savings accounts, where they earn little to no interest.

It would take 35 years for an investor to double their money in cash terms, on the assumption of a long-term expected return of 2%. In the long term, they’re missing out on historically higher returns that can be yielded from investments when compared to cash, and also lose out on the compounding advantage of starting their retirement plans earlier in life.

In contrast, only 20% of wealthier millennials do the same, as they prefer to invest their money for long-term returns and as part of their future retirement fund. As a result, the wealth gap between these two groups will continue to grow larger year-on-year, due to the compounding nature of investing.

What with the pandemic-induced financial crisis that is further fuelling South Africa’s poor economic performance, millennials are increasingly buying cryptocurrencies as a long-term investment strategy, with their retirement in mind.

MILLENNIALS ARE DIVERSIFYING THEIR INVESTMENT PORTFOLIOS WITH BUNDLES
Unlike their parents’ generation, wealthy millennials are more open to investing in an array of investment opportunities that may vary from traditional investments, such as stocks, to alternative investment options. They also understand the importance of diversifying their portfolios, no matter the investment plat-form or asset class.

Millennials are growth-minded and more willing to invest in so-called ‘crypto bundles’ that function in a similar way to index funds. Bundles are diversified pre-selected baskets of top-performing cryptocurrencies that allow investors to invest directly in the underlying cryptocurrencies within that particular bundle, without the need for an intermediary, such as a fund manager.

Unlike their parents’ generation, wealthy millennials are more open to investing in an array of investment opportunities …

This is the safest and most financially sound approach to investing in this emerging investment class. Bundles are an easy and transparent way to access growth-focused investment opportunities that are ideal for first-time investors, and start from as little as R500.

WEALTHY MILLENNIALS UNDERSTAND RISK
A successful investor is one who understands risk, and uses this knowledge to create a strong, long-term investment portfolio. An investor’s risk appetite is determined by a number of factors from age to income, net worth, among numerous other factors. Investment risks are also measured in different ways by different investors—according to returns, liquidity, price volatility, the investment period, and so on.

The majority of millennials have a risk-averse investment mentality. Blackrock’s Global Investment Survey found that 85% of millennials consider themselves ‘conservative’ when it came to risk tolerance, while less than a third of baby boomers claim to be conservative investors.

However, wealthy millennials differ from their peers in that they embrace growth-focused investment opportunities in alternative asset classes such as crypto-currencies, tech stocks, and venture capital funds. Ultra-high-net-worth millennials—those with more than R25 million in assets—are more likely to take more calculated investment risks, according to a study by Oppenheimer Funds and Campden Research.

In closing, investing like a wealthy millennial in a tech-savvy, open-minded manner that prioritises diversification of your investment portfolio across a number of international markets and asset classes to help spread your risk, is advisable du-ring this economically-turbulent period.

Sean Sanders is the founder and chief executive officer of investment platform Revix.