Investments  

Will micro-investing be the Millennials' way into long-term investing?

Helen Oxley

Helen Oxley

Concerns are mounting that Millennial investors face a widening savings gap.

It's not hard to see why. The challenges of a low-growth economy, potentially diminishing job opportunities, rising student debt and the end of highly rewarding final salary pension schemes mean individuals must bear more responsibility for their retirement income. 

This is the new age of responsibility where the onus has shifted from government and companies to the individual.

Young people might remain aspirational, but the Intergenerational Foundation, which gauges generational disparities, believes young people face a bleaker future than their parents before them.

It warns unless urgent action is taken, millennials will be locked further out of home ownership, bear the pension costs of a rapidly ageing population and face a diminished financial future. 

On the bright side, pension funding will be improved by a planned increase in the level of auto enrolment, but there is some way to go in terms of plugging the savings gap.

Even the 2019 auto-enrolment figure of 8 per cent is merely poverty prevention according to pension consultant Redington, which has campaigned for a 15 per cent national savings target to fund a living pension.

And even this does not address shorter-term concerns such as saving for a house deposit or building up a flexible savings pot.  

The good news for millennials is the UK has the savings and investment infrastructure to build a brighter financial future. Isas (and the incoming lifetime Isa) and Sipps provide flexible and tax-efficient saving vehicles.

Engagement, however, remains a major problem. Unfortunately, a large section of the wealth management industry, by concentrating on larger investors, has alienated or failed to engage with millennials or people with more modest incomes. 

We believe the answer may lie in the world of micro investing, where new platforms are transforming the saving and investment landscape for young investors.

In the world of the micro, investors incrementally buy company shares or low-cost passive funds (typically ETFs) to grow large pots over time. It taps into the age-old regular saving discipline of pound-cost-averaging and the extraordinary effect of compound interest.

The micro world is also the world of the robo adviser, or robo-investor, where risk modelling or portfolio management online is provided with minimal human intervention.

These new models appeal to Millennials and those with lower incomes who want low-cost access to simplified advice via smart and easy-to-understand digital interfaces.

They also link into the concept that ‘virtual change’ can be funnelled into saving accounts following online purchases.

Increasingly, we have been working with new generation platforms such as Wealthify, and Moo.la to transform the micro investment world. These online investment services aim to be savvier around social media and digital engagement to resemble some game-changing companies in different industries.