The millennials are all grown up now. No longer do the discussions revolve around learning out of the box, public displays of affection or a narcissistic social media life.
They are finally earning money and managing their own keep. And needless to say, investing is, or should be, part of their personal financial plans too.
Their investing strategy, however, is complex and can only be understood if we understand their psychology.
Millennials grew up with a perceived overdose of parental affirmation and micro-management. They have been so used to being affirmed as ‘excellent’, failure is almost a taboo.
How does this then apply to their investing habits?
Many millennials do not want to be known as the generation that loses their family wealth. A white paper released by Merrill Lynch revealed that this nagging fear deters people from even trying to understand investing, let alone doing it.
They avoid investing at all costs
No hit means no miss. Unlike investing, saving cash is a sure win since no losses are incurred.
With this mindset, millennials tend to be 1.6 times more likely than older generations to have no investments at all.
They opt for minimal risks
Calculated risks are the rule for those who are into the investing game. Many are inclined to invest in Exchange Traded Funds (ETFs) as they value low volatility, higher transparency and higher diversification – in other words, lower risks.
They lean towards philanthropic investments
To lower the risk of disappointing their parents, millennials often choose to engage in purpose investing, otherwise known as philanthropic investments. Returns in this case will be in the form of doing good for the society instead of garnering personal monetary profits. Therefore, any monetary losses will be perceived as charity rather than a failure and disappointment to their parents.
Merrill Lynch also explained the stark difference between an investor’s psychology prior and post the 1990 dot com bubble. In the past, investors forecasted their investment results on their expected wins but millennials actually use the avoidance of losses as their benchmark now.
This situation is aggravated as they witnessed how financial crises caused the fall of major banks.
They are self-directed investors
Millennials are very cynical about both investing and the advice provided by professional fund managers.
Instead, they make their own decisions and prefer their fund managers to provide them with network opportunities for further business progression. They are after all, educated social creatures who mix business with friends.
That said, it is surprising that they have no qualms about switching brands when it comes to investing.
They do not believe in absolute bank loyalty
Facebook reported that 45% of millennials would switch banks if a better option came along. This stems from the lack of trust for major banks as they failed unexpectedly during the major crises.
As such, millennials prefer personalisation and shy away from hierarchical inefficiencies as they engage in smaller settings such as private family offices.
Millennials are not merely obsessed with the instant gratification that technology provides. The majority check their phones more than 157 times a day because they cannot live with uncertainties – they want real time updates for everything.
They are possessive investors
Like possessive lovers, they want to know the state of their investments at any time and any place. Unlike their boomer parents, they cannot wait for this information to be processed by the media. Besides, they do not need any third party to interpret the results.
Technology can do that, with services conveniently provided by mobile apps and websites.
They invest in what they believe in
Millennials perceive technology as their assistant. Living without it is simply impossible. As such, they believe and invest heavily in technology and innovation.
Some common examples are Twitter, Google and Facebook. Ironically, millennials do not seem too bothered with the risks inherent in such relatively new industries. In fact, millennials are up to three times more likely to invest in these emerging markets compared to those over 55.
The Millenial Mindset
Millenials are often said to be living the YOLO (you only live once) lifestyle but when it comes to investment, they reveal a very cautious yet proactive side. Only time will tell how this plays out when millenials get closer to retirement.