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Covid-19 has carried with it a wide range of disruptive influences across countless industries. While there was an initial significant adverse impact on the investment landscape, it appears that the pandemic has accelerated a trend of younger investors arriving on the stock market.

The days of institutional dominance of the stock market appear to be numbered, with more investing apps like Robinhood and Sofi bringing unprecedented access to markets for both millennial and Gen-Z investors.

While digital investing platforms are nothing new, the likes of Robinhood have worked to create a compelling user-friendly interface where traditional broker firms have struggled to generate an appealing UX for younger users.

Due to the more impulsive nature of millennial investors, many have rejected the advanced functions of traditional brokerages in favour of a more simplified approach to investing.

In fact, data shows that the millennial generation of investors are among the most impulsive movers on the stock market today, with their younger Gen-Z counterparts exercising more caution and pessimism – perhaps owing to the influence that that 2008 market crash played in their formative years.

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(Image: Visual Capitalist)

As the data above shows, millennial investors are heavily interested in technology stocks, with nearly half of their portfolios dedicated to tech purchases. But what really makes this new generation of investors tick? And how will they influence the wider world of investing?

Characterising Millennial Investors

The retail trading landscape grew exponentially in 2020. In the US, there were an estimated 10 million new individual investors arriving on the market following the pandemic. This move has been largely attributed to online brokerage firms and their zero commission rates helping to boost accessibility.

These new retail investors are highly active too. On peak days of trade, retail accounts for as much as a quarter of the volume – showing that the dominance of institutions is being muscled in on.

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(Image: CB Insights)

These new investors are being labelled as ‘Robinhood investors’. This isn’t solely because they’re using Robinhood (although, as the chart above shows, the app attracted an average of 20 million monthly active users at the start of 2021), but more references that greater levels of involvement that these new arrivals are having on the equities market.

Maxim Manturov, head of investment research at Freedom Finance Europe also notes that circumstances may see more of these new investors looking overseas for opportunities – as US and China trading tensions have seen fresh restrictions on companies going public overseas.

“People could start investing more in the West, while the Chinese companies are currently unable to IPO overseas. On the other hand, the investors from the EU and the US may also flock to China, as more companies with good potential could start IPO’ing in the mainland,” said Manturov.

Typically consisting of millennial investors, these younger entrants onto the market are likely to absorb more risk in their portfolio while they are less likely to hold on to their investments over longer periods of time. In a nutshell, millennial investors are eager to get rich quick.

This is perhaps unsurprising when millennials’ share of household wealth is comparatively low. This is due to a significant generational gulf in wealth, with millennials more likely to be on short-term, temporary or zero-hours contracts along with student debts and higher property costs than their predecessors.

Millennial Investor Behaviour

Interestingly, millennial investors have been happy to compound their risk and take on loans to facilitate their investments.

According to a survey from LendingTree’s Magnify Money, both millennials and Gen Z investors alike are relying on loans to invest in stocks. 80% of Gen Z investors and 60% of millennials have claimed to have taken on debt for investing – according to a pool of 2,000 US consumers.

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(Image: Motley Fool)

As we can see from the table above, younger investors are overwhelmingly sentiment-driven when it comes to investing. They largely rely on social media cues or from work of mouth via their friends, families or third party organisations they trust.

It’s this reliance that we’ve already seen in practice in the cases of the GameStop and AMC short squeezes during early and mid 2021 where retail investors coordinated their buying patterns with Reddit group r/WallStreetBets to outmanoeuvre hedge funds and cause a stratospheric price rally on predetermined assets.

The impact of these social media-driven short squeezes has forced institutional investors into rethinking their strategies. More sentiment-based approaches appear to be favoured, with hedge funds rumoured to already be crawling online discussion boards for indicators of where retail investors may move next.

Despite the fact that millennials are getting their investment advice from unconventional sources, they appear to be outperforming their older counterparts. 38% of UK millennial investors have seen their portfolios grow compared to 15% of the baby boomer generation since the start of the pandemic.

Valuing Sustainability

While millennials appear to be using social media to great effect in gaining an advantage in identifying stocks to keep an eye on, they’re also heavily value-driven. They largely favour ESG stocks, and factor the sustainability of businesses alongside their potential return and risk.

Once again, this trend has the potential to fundamentally alter the investing landscape. As we saw with Deliveroo’s troubled floatation, a business that has a difficult relationship with its employees can suffer when it comes to being judged by its prospective investors.

However, Alpa Bhakta, CEO of Butterfield Mortgages notes that the baby boomer generation grew up alongside “the “free love” and environmental movements of the 60s and 70s, one can see a generation of young people who also had an interest in these kinds of social values. As such, it might be argued that like their parents, millennials will move on from their values, becoming less idealistic and more predisposed to pursue traditional investments.”

Although Bhakta also acknowledges Deloitte research which suggests two-thirds of millennials feel “obliged” to change the world, while 75% intend to be authentic and refuse to compromise their personal values when it comes to investing.

The Myth About Memes

In the wake of the GameStop saga and subsequent pumps of AMC along with the resurgence of meme-based cryptocurrencies like Dogecoin, there’s been a developing consensus that millennial investors are intent on buying into memes.

However, data suggests that meme stocks aren’t as popular as they seem among millennials and Gen Z investors, with around 30% of both age groups combined owning a meme-based stock.

Motley Fool’s survey of 1,400 investors aged between 18 and 40 found that 73% of Gen Z investors and 66% of millennials respectively owned traditional stocks – indicating that this new generation is built to last.

The challenge for the rest of the industry will be to adapt their operations to better accommodate this new wave of younger investors who are dead set on keeping their ear to the ground to find the next speculative stock with sustainable fundamentals.

Covid-19 has opened the door to a new generation of retail investors, and now it’s up to the industry to adapt to this changing ecosystem.

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