The rise of the young investor has come with big risks

Last year Hargreaves gained a record 220,000 new customers, and in the year to September 30 2020 AJ Bell reported that 63,000 customers joined its platform.

Excluding those that have been added as a result of its acquisition of the Share Centre, Interactive Investor gained more than 40,000 new customers, which is more than double its new customers in 2019, its trading update figures show.

The pandemic is breeding a new generation of active and purpose-driven investors in their late 20s and early 30s who are keen to do more and do good with their money, according to a study by Nutmeg. 

The research on the impact of the Covid-19 pandemic on consumer attitudes towards money and investing – based on a survey of 2,000 people across the UK – revealed that those aged 25-34 are set to emerge from the pandemic feeling wealthier, more financially confident and determined to use their money to do good, more than any other age group. 

The pandemic is also leading to significant shifts in the attitudes and behaviours of young adults towards their money. Of those 25-34 year olds that hold investments, 60 per cent have put more money in investments over the past year, compared to 38 per cent of the population. 

Kat Mann, head of PR and savings and investment specialist at Nutmeg, says: “Even if [over the past 12 months] you have been fortunate to have kept a job and to have been financially better off, the reality is the landscape and environment means we are very aware of that need for a rainy day fund.”

In its annual results for the year to September 30 2020, Andy Bell, chief executive of AJ Bell, said the D2C platform market in UK – estimated to be worth £210bn – saw accelerated growth in 2020.

And compared to five years ago, today’s new customer is typically a younger, less experienced investor who inevitably has a smaller portfolio to begin with. 

Platform offerings

So what do these platforms offer to younger investors and are there emerging risks to be aware of?

According to AJ Bell, more and more of these clients want help and guidance as they begin their long-term investment journey and are likely to engage with their investments using a mobile device.

Bell said: “While this is another trend accelerated by Covid-19, we have seen this as being the direction of travel for a number of years; evidenced by our strategy of providing a range of guided investment solutions to help customers invest, and focusing on making our platform easy to use, both on our website and via our mobile app. 

“We see no sign of this trend slowing and will continue to focus our efforts on delivering an easy-to-use platform offering a range of guided investment solutions and a first-class user experience across all devices. This will ensure we remain well positioned to capture an increasing share of the D2C market.”

At Hargreaves, the platform says younger people are showing more interest in investing for the future with equity trading volumes up by 123 per cent over the past six months. 

Meanwhile, there has been a surge in the use of its app, with a 57 per cent growth in the number of logs-ins in the last six months of 2020 compared with the same period in 2019.

In 2012, 46 per cent of Hargreaves' clients were aged between 55 and 80. That proportion is now 34 per cent. 

And since 2012, it has seen the average age of new clients decrease from 45 to 37. This was reflected in the first half of 2020 where 47 per cent of clients joining were in the 30-54 age bracket.

Chris Hill, chief executive of Hargreaves Lansdown, has said clients value a simple and intuitive experience that is supported by a range of channels, including mobile apps, website access and over the telephone.

“With our comprehensive proposition and easy-to-use digital offering, combined with the extensive expert insight and research we provide to support clients in their investment journey, we can provide this experience.” 

Risky business

But with such growth comes risk, as highlighted by the Financial Conduct Authority recently, which raised concerns that there is a new, younger, more diverse group of consumers getting involved in higher risk investments, potentially prompted in part by the accessibility offered by new investment apps. 

As a result of the pandemic there has been a sharp rise in do-it-yourself investing and day trading. 

The FCA said there was evidence that the higher risk products may not always be suitable for these consumer needs as nearly two-thirds (59 per cent) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle.

The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest. 

If you are trading on the go, you need to ensure you give each trade as much consideration as you would if you were sitting in a quiet place at home, to try and ensure you are not swept up in any hype Hargreaves Lansdown spokesperson

The regulator added: “This is particularly true for those investing in high-risk products for whom the challenge, competition and novelty are more important than conventional, more functional reasons for investing like wanting to make their money work harder or save for their retirement.”

A spokesperson for Hargreaves says in many ways trading apps have democratised the whole investment process, but adds they need to be used thoughtfully: "If you are trading on the go, you need to ensure you give each trade as much consideration as you would if you were sitting in a quiet place at home, to try and ensure you are not swept up in any hype. 

“There are clear financial dangers if traders indulge in highly speculative behaviour and put money into products as part of a gaming mentality rather than pursuing a well thought-out investment strategy.

“The more established investment platforms, like ours, don’t provide chat communities, which can fuel short-term trading behaviour.”  

Playing the long game

Although shares that have been the focus of speculation have become more sought after on its platform, Hargreaves says it is making every effort to encourage traders to diversify their holdings through client communication, and risk warnings are fed straight through to clients via the app and online accounts.  

These warnings flag the dangers of stock market speculation, and urge clients to think twice before buying ‘hot’ stocks that are high in demand.

Bella Caridade-Ferreira, chief executive of Fundscape, says: “I always say to young people, 'all the fund managers who do this for a job study the market and they still don’t always get it right, despite their best efforts', so why young investors think they are going to identify the stock that will make them rich is beyond me.

“But the interest [to invest] from young people is there, so we don’t want to kill it off. Now we just have to convince them the tortoise approach is better for long-term investing.”

Ima Jackson-Obot is deputy features editor at FTAdviser