The pandemic is encouraging more people to invest

John Somerville

John Somerville

A Hargreaves Lansdown report, published this week, points to an increased interest in investing among younger clients.

The reasons for this are many and varied.

There is no doubt that the pandemic has had an impact on attitudes to money, highlighting the need for individuals to be more financially resilient as well as to protect themselves against the risk of illness and loss of income or life.

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At the same time, many people have been able to save more – money they might otherwise have spent on commuting, holidays, eating out and entertainment – giving them the funds to invest, perhaps for the first time.

Another factor that may be at play here is a generational difference in attitudes to money.

This is something we have seen over seven years of surveying young people for our Young Person’s Money Index. Young people consistently tell us that they want to learn more about how money works and how to manage it.

And while respondents to our survey are much younger than the cohort currently flocking to invest, the evidence indicates a marked trend in attitudinal change.

So far, so good. Increased investment in the markets will not only help the economy to recover from the impact of Covid-19; if more people are investing in their financial future at a younger age, that will lead to a more financially stable society as a whole.

However, we should not be blind to the dangers of less experienced investors piling into the markets.

The recent trading frenzy over Gamestop is the perfect example of how disruptive bad messaging can be.

While some people may have made money from Gamestop at the expense of hedge fund managers, those who followed the crowd and were late to invest will have lost their money, not unlike a pyramid scheme.

Uninformed amateur investors will have found themselves sinking spare cash into a dying company.

And then there is the potential damage such investors might do to the way the markets function. This could impact all of our pension returns and even – in the worst case scenario – put some good firms out of business.

The first and most obvious lesson to many of us is: don’t get your financial advice from Reddit or any other social media channel.

More importantly, this fiasco highlights the need for professional, well informed financial advice, not just for investors but for the wider good.

And it shines a light on the social responsibility aspect of a financial adviser’s role – particularly when dealing with clients who have less experience with investments.

Social responsibility goes beyond looking after your client, informing them of risks, and helping them plan their financial future.