and it’s emotional
The newly published FCA Financial Lives Survey 2022 outlines the increasing number of new investors now putting their money to work …
High risk work, but we’ll get to that.
Before the Covid-19 pandemic roughly 2m UK 18-34-year-olds had investments, but that number is now 3m. It’s a substantial hike in a very short space of time; during some fairly extreme and abnormal market conditions.
The majority of new 18-34 UK investors (70%) are male, and the most common instruments include direct stocks and share holdings (41%), stocks and shares ISAs (36%) and non-advised platforms (26%) …
Oh and crypto of course. Approaching half (46%) of new investors hold one or more crypto assets.
Appetite for risk
One in eight (16%) 18-34-year-old investors state they have a moderate-to-high appetite for investment risk while just one in 25 (4%) in older age brackets say the same.
Okay. The fact that younger, mostly male investors want to take risks isn’t a huge revelation, but a few more flags double down on the hype and emotion in play.
For example, over half (54%) of the new crop of investors said they used social media (33% YouTube; 29% Facebook, Instagram, Twitter, or TikTok) to inform their investment knowledge and decisioning. To put this in context, just 18% of the investor base as a whole namedropped social media as a source of information.
When asked for their motivations in getting into the game, younger investors were much more likely than older investors to cite emotional (as opposed to functional) reasons.
Some 85% of newer investors stated that their trigger to invest was emotional. For more than one in three (37%) it’s about the challenge, fun and excitement, while 29% straight-up say it’s about the thrill of the gamble.
Crypto needs calm
Crypto is speculative. And while there is now some regulation (for money laundering purposes) it is still unregulated as an investment asset. Often, the social media hypesters are even less regulated in what they can say, promote and endorse.
The main note of caution here is that most younger investors who buy into crypto are all-in. In other words it’s not a small part of a bigger and diversified portfolio – it is the portfolio. As such it can also be summed up as glorified gambling.
Taking more risks when you’re younger isn’t bad per se, but there’s a difference between an investment and a bet. You can scratch the itch without having to play trader / crypto guru if, for example, you go for a Global Index Tracker, which is more of an up-and-down ride than, say, corporate bonds and / or property.
It may sound boring but diversification is key because no one can predict the next big thing. Sure, some people did make a killing in crypto during its peak, but contemporary data says that between 75 and 80% of all crypto investors have lost money.
And while Bitcoin is held as the crypto-gold-standard, well over 50% of investors were down by late 2022 according to a report in money.com.
Optimal maybes
All this talk of stability and groundedness sounds boring next to YouTube hype vids of billionaire Bugattis and desert island decadence. Sure. But whether your poison is crypto or commodities, there’s a best-practise formula in investing that stands the test of time …
And it starts before you invest. It’s about first nailing your foundations. It’s dealing with your short-term debt, building an emergency fund, looking at pensions and life insurance …
Only then it’s time to explore investing (especially high risk stuff) as a way to grow your money over time.
On that, investments tend to be more favourable over the long term but patience doesn’t necessarily fit in the crypto mindset. Ditto there’s something romantic about going all-in on crypto yet it is deriskable when you diversify your portfolio and see crypto as one of many, not the be-all-end-all.
It’s a clash of cultures, in a sense, but applying established investment principles to crypto is a good way to shield you (and future you) from overly painful losses.
In for a ride …
Putting all your eggs in one cosmic crypto cauldron is hugely risky. Doing it before you’ve nailed your financial foundations is more like approaching the roulette table and putting your future on red 44 than it is a strategic investment.
No one’s saying leave crypto alone or that it’s poisonous. It’s not. But it comes with a (financial) health warning. No doubt it’ll be an up-and-down kind of a ride. Crypto is immature, wild and volatile … but that doesn’t mean those who invest have to be.