Capital Markets Corporate

November 8, 2019

Earning the trust of a sceptical generation of investors


The UK equity investment industry has an age problem. Research suggests most young people are not investing in stocks at all, with the millennial generation – who grew up during the financial crash – shying away from building investment portfolios altogether.

Having grown up in the shadow of the financial crash, it is understandable why many young people have lost faith in the financial system and aren’t investing as their parents would have done. Indeed, a study by Goldman Sachs found that almost 40% of young people have no interest in investing in the stock market at all, while another 45% said they are sceptical and would not invest large amounts of money, instead choosing to trade in low risk strategies.

How innovation can coax younger generations into becoming investors

Many millennials witnessed their friends and family members struggling to cope during the financial crash. As a result, scepticism is ingrained in young people, who prefer to hold their money in cash despite record low interest rates.

So, what can stock brokerages do to convince people that investing can be beneficial? According to Charles Schwab, one way to develop the next generation of investors is the use of fractional trading – for those unable to invest fully into expensive single blue chip stocks such as Apple and Amazon, fractional investing allows investor to buy a part of one share in a large company for a fraction of the price.

The rationale behind promoting this kind of investing towards young people is that they may not have as much money to invest as older generations, but if they are given the opportunity to invest small amounts in household brands, by the time they are older and have more disposable income they will have the experience, confidence and capital to invest more.

Online tools drive younger investment

Before the Internet, investing in stocks was limited to people with experience and qualifications in business and finance. However, vast amounts of information are now readily available online, making the world of investing more accessible to younger people than ever before. Jonathan Warren of financial services consultancy Altus notes that the readily available information on blogs, forums, apps and other online platforms offer a level of expert knowledge and analysis that gives younger people much more independence – and confidence – when investing.

Furthermore, new easy-to-use digital investment platforms are also catching younger generation’s attention. Like fractional trading, these platforms have lowered the bar of entry for investing with a more DIY-focused approach. Users can build a portfolio in just a few minutes using an app and a credit card.

Another digital tool being used to drive young investment are services that offer passive ‘round-up’ investing. For example, if you buy a coffee for £2.50, the app will automatically round the payment up £3 and deposit the additional 50p into an investment portfolio. Moneybox, a ‘round-up’ investment app, has generated over 125,000 investors since it began. Its co-founder believes that these kinds of apps are attracting people who “would probably have eventually started investing, but not for another 10-15 years.”

Given the small amounts invested, these kinds of apps do not offer huge returns, but are successful in attracting young people into the world of investing earlier than expected.

Engaging a generation of sceptics

Many financial institutions are starting to evolve their investment practices to suit a generation lacking in trust. They now recognise that the old methods of engagement will not work for a cohort with high levels of debt and even higher levels of distrust in a system that scarred the nation.

Allowing younger people to dip their toe into the world of investing without excessive amounts of risk – as well as plenty of information to support their investment journey – are safe strategies that seem to be working for millennials.

The psychological scars of the financial crisis have yet to fully heal more than a decade on. It will take patience, care and innovation to convince the people who grew up through market turmoil that equities are a safe home for their savings.

By Jonas Helyar, Intern