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Young wealthy undeterred by advice horror stories

Emma Rapaport  |  04 Dec 2018Text size  Decrease  Increase  |  
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Generation Y

Alternative assets and financial advisers are favoured by Milennial investors, a new study shows.

Cashed-up milennials prefer more exotic, higher-risk investments over traditional asset classes and are more likely to engage their conscience when investing, a recent study has shown.

This cohort also prefers to use the services of a professional financial adviser – a surprise given the bad rap wealth managers have copped in recent times, and also the timing of the survey, which coincides with the height of the banking royal commission.

The Legg Mason Global Investment Survey 2018, now in its sixth iteration, surveyed 1,000 individuals who intend to invest at least $15,000 over the next 12 months, and who have made investment alternations within the last 5 years. Data was collected during July and August 2018, and more than one-third of the respondents were aged between 18 and 37.

Of the Millennials surveyed, 57 per cent were male, the average yearly income was $101,000, and 77 per cent were in full time paid employement. 

While older respondents preferred equities, Millennials are on the hunt for riskier, non-traditional assets – reporting a 21.9 per cent allocation to alternatives including hedge funds, managed futures, commodities and derivatives.

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This compares to an 8.6 per cent allocation for investors aged 70 and older, and 8.2 per cent for Baby Boomers (aged 51 to 70). Millennials on average allocate 20.4 per cent to equities, compared to 28.8 per cent of Baby Boomers.

Young wealthy prefer advice

Sixty per cent of respondents aged 18-36 said they use an adviser for most or all of their investment decisions, compared to only 32 per cent of baby boomers.
Twenty per cent use advisers for some of their decisions, and the same proportion rarely or never use them, the survey showed.

This result contrasts starkly to other surveys of recent years, which show individuals across all income spectrums turning away from professional advisers.

A late-2015 study conducted by Investment Trends showed only 20 per cent of Australians used a financial adviser.

Tech savvy and ESG aware

 A willingness to use technology to manage their investments, openness to new asset classes, and heightened concern about environmental, social and governance issues are other clear distinctions in the way Millennials invest. 

"Millennial investors are most likely to back their convictions and invest based on their own views of the world," the survey said.

"Millennials may also be more comfortable with alternatives than the Baby Boomer generation because they have grown up with these assets being a core part of the investment landscape and have witnessed continued market volatility impacting traditional assets after the Global Financial Crisis."

Allocation to cryptocurrencies was not surveyed, but 50 per cent of Millennial respondents said they 'fully understand' the digital asset, and a further 40 per cent said they 'partly understand' it. Only 10 per cent said they 'do not understand' crypto at all, compared to 31 per cent across all age groups.

The survey also revealed huge differences between Millennials and Baby Boomers in environmental, social and governance investment. Seventy per cent of Millennials say they use ESG funds compared to 21 per cent of Boomers.

"Millennials are more idealistic in their approach, embracing ESG assets and considering ethical factors as keenly as they look at returns," the survey said.

Younger people strong users of ESG funds

Younger people strong users of ESG funds

Source: Legg Mason Global Investment Survey 2018

While surveyed investors (including Millennials) expressed uncertainty about financial technology, with 75 per cent believing personal customer service can "never be replaced with technology", 66 per cent of Millennials said they would like to manage all their personal finance including bank and investments in the same app on a smart phone/mobile device.

Overall, Australian investors are more confident about the investment market outlook for 2019 than their overseas counterparts. A considerable proportion see the return of volatility as an opportunity.

Australian stocks, international stocks, real estate and cash – in that order – are viewed as the best opportunities for the year ahead, the study shows.

Global economic instability, the cost of health insurance and low interest rates were nominated as the most pressing concerns.


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Younger people strong users of ESG funds


is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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