• Amal Malik

Young Retail Investors: Early Birds or Victims of App Gamification?

Updated: Dec 20, 2020

Amal Malik examines why young people are investing in stock markets now more than ever and what the retail investing landscape could look like in the future.


An increasing number of millennials are delving into securities via short-term brokerage platforms and realising the significance of investing early (partially because of how difficult it will be for them to amass the same amount of wealth as their baby boomer parents).


The Pew Research centre suggests that in spite of 40% of millennials aged 25-36 having a bachelor’s degree (as opposed to the 30% that baby boomers had when they were within that age bracket), millennials are earning 20% less than what the preceding generation were.


Coronavirus, the plummet in stock prices across the globe and low interest rates have spurred Gen-Y and Gen-Z to descend onto trading as a means of increasing their income. But will this be enough to close the vast emerging millennial wealth gap?

Online stock trading platforms


Accessibility is one of the key motivators for millennials to dabble in the stock market. As “digital natives” have come to realise that they can start accumulating more wealth through the ease of an investment app, user acquisition rates across virtual trading platforms have skyrocketed.


Robinhood, eToro and Raging Bull have seen 300%, 220% and 158% surges in deposits respectively, reaching all-time highs in March 2020. Similarly, Wealthsimple Trade saw growth at the rate of 7,000 new users per week in April, with 55% of the platform’s new users trading under the age of 34.


It seems as if millennials overall are thriving off of the carnage in the market and are two times more likely to seize the opportunity to buy stocks that are at a cheaper share price, especially in individual companies. Typically, advisers are more inclined towards portfolio diversification through exchange-traded funds or passively managed index funds to gain access to a breadth of stocks instead of cherry-picking companies.


Another key factor that could undermine millennial portfolio performance is that stock-market ETFs and commodity-linked ETFs perform quite differently (as demonstrated by the plunge in oil prices, which are now in contango). Furthermore, more senior investors and financial analysts are concerned by millennials’ affinity for retail investment in an increasingly volatile market. Currently, the most traded companies across the four aforementioned digital platforms are Apple, Amazon, Microsoft, Boeing, Aurora Cannabis, Carnival and Disney.


While these apps make trading seem easy, a Harvard PhD economics student confessed to the Financial Times that “Robinhood has gamified investing. Trading is now so simple that it can be easy to make impulsive decisions” after losing thousands of dollars by betting on risky stocks. He argued that idleness during the lockdown further prompted him to use the app.


Long-term investments


According to a survey from Bankrate, most millennials feel as if real estate is one of their most significant long-term investments. To secure a mortgage, a substantial down payment is critical to purchasing a home and some would argue that it really isn’t worth-while nor does it compensate for having an adequate retirement fund. In fact, property taxes, maintenance and insurance could put a further financial strain on young professionals.


In terms of planning for even longer-term events, most significantly retirement, where millennials and Gen-Z choose to store their savings is fundamental. Savings accounts nowadays don’t seem to benefit young savers or investors. Interest rates so low they are effectively neutralised by inflation and discreet maintenance costs can chip into your savings. For those more inclined towards saving cash, rather than investing in stocks and other equities, this could be detrimental. Over a long period of time, a 10% return rate on average is estimated for stock investments, which is why investing early is so crucial.


While millennials warming up to the stock-market seems irreversible at this point, trading without adequate caution, research and being too susceptible to the “gamified” nature of trading apps could lead to widening of the millennial wealth gap.


Further reading

https://www.cnbc.com/2020/04/28/investing-advice-millennials-are-stock-trading-to-beat-the-downturn.html

https://www.cnbc.com/2019/11/05/millennials-earn-20-percent-less-than-boomersdespite-being-better-educated.html

https://www.newamerica.org/millennials/reports/emerging-millennial-wealth-gap/

https://www.thisismoney.co.uk/money/diyinvesting/article-8362413/Young-people-likely-start-investing-amid-coronavirus-market-crash.html

https://www.investopedia.com/terms/m/millennial.asp

https://www.cnbc.com/2019/07/18/millennials-say-real-estate-is-the-best-long-term-investment.html

https://www.ft.com/content/9336fd0f-2bf4-4842-995d-0bcbab27d97a


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