Interactive Investor

‘We are living in an investment age of extremes’

20th October 2021 10:37

Jemma Jackson from interactive investor

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interactive investor comments on FCA research into younger high-risk investors.

  • FCA research suggests 76% of under 40s who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family and acquaintances and their own past investments
  • 58% say hype on social media fuels their decisions
  • Coincides with FCA’s InvestSmart campaign, to help new investors understand the risks they may be running

Commenting on today’s research, Moira O’Neill, Head of Personal Finance, interactive investor, says: “This research amongst higher-risk young investors chimes with broader research conducted by interactive investor in June among the general population.

“We found that a fifth of all 18–29-year-olds said they had invested in bitcoin at some point, with half of these turning to a cocktail of debt to fund it.

“But when it comes to risk, we are seeing some extremes among younger age groups. With a 10-year horizon in mind, our research has found that cash was considered the best home for the biggest chunk of savings (20%) among 18-29-year-olds, followed by cryptocurrency (16%), shares (14%), funds (11%) and investment trusts (8%).

“More airtime should be given to the many young people who are completely risk averse, compromising long-term financial security. Previous interactive investor research has found that over a fifth (22%) of 18- to 34-year olds are in low-risk pension options, potentially harming the growth prospects of their pension.

“We have a lot of time for the FCA’s InvestSmart campaign, but we think young people would get off to an even better financial start with more financial education in the classroom. This has not been joined up or given the time on the national curriculum that it deserves.

“We also need to have more balanced conversations about risk and reward, and need to be careful not to fall into avocado-style shaming of young people and their investment risk.

“Among our own youngest investors on the interactive investor platform, 18-24 year olds have a blend of investment trusts (33%), funds (24%), direct equities (27%) and cash (10%). Younger investors aged 18 to 24 have been among our strongest-performing age band over the last 12 months, boosted perhaps, than a higher-than-average exposure to investment trusts, which tend to outperform in a risking market, and underperform in a falling market.

“Collectives such as Scottish Mortgage (LSE:SMT), Alliance Trust (LSE:ATST), F&C Investment Trust (LSE:FCIT), Monks (LSE:MNKS) and RIT Capital Partners (LSE:RCP) all count among the most-held investment trusts on our platform among this younger age group, with Fundsmith Equity among the most widely held funds.

“Whether amongst the younger or the older generations, we are in an age of extremes when it comes to investment risk, and while the FCA’s InvestSmart intentions are spot on, they need support from government in the form of more financial education in schools.”

Tips for beginner investors

Interactive investor has a knowledge centre for beginner investors: https://www.ii.co.uk/knowledge-centre/investing-for-beginners

interactive investor recommends six carefully selected Quick Start Funds for beginner investors:

ACTIVE/SUSTAINABLE

BMO Sustainable Universal MAP Cautious. The lowest risk of the three BMO funds. It targets an annualised return of 2% above inflation over five years and can hold as little as 20% and as much as 60% in equities.

BMO Sustainable Universal MAP Balanced. The medium-risk option. The fund targets an annualised return of 3% above inflation over five years.  The fund can hold as little as 30% and as much as 70% in equities.

BMO Sustainable Universal MAP Growth. The most adventurous, higher risk of the three but with potential for higher gains. The fund targets an annualised return of 4% above inflation over five years and can hold as little as 40% and as much as 80% in equities.

Bear in mind that each target for the funds is just a target and not guaranteed.

PASSIVE

Vanguard LifeStrategy 20% Equity - for shorter term goals (3-5 years)

Vanguard LifeStrategy 60% Equity (for 5+ years)

Vanguard LifeStrategy 80% Equity (for 5-10 years)

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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