Millennials opt to spend, not save
Investing has become more difficult in a volatile market after a strong 2017
illennials, who represent the highest proportion of the world’s population, are among the highest spenders compared to Gen X and baby boomers, even as they end up saving less for their retirement compared to other generations.
In the United States alone millennials, who are generally chased by investment banks, media and other consumer firms, are about 75.4 million, surpassing 74.9 million baby boomers.
About 53 per cent of millennials are likely to spend money on taxis and Uber compared to 29 per cent Generation X and 15 per cent Baby Boomers. About 60 per cent of millennials buy coffee that costs more than $4 (Dh14.68) compared to 40 per cent from Gen X and 29 per cent from baby boomers.
“Millennials are far more likely to spend on non-essential items than previous generations and are more comfortable with a rent-based economy. They prefer to rent their cars, homes, and services than to own. They also have less propensity to save which may stem from the fact that during the financial crisis in 2007-2008, they were still in their mid-teens,” Tareq Bin Hendi, acting chief investment officer at Emirates NBD told Gulf News.
“The direct impact did not affect them on an individual level as it may have affected their parents, which is why the level of savings rate for Generation X and Baby Boomers is higher,” Bin Hendi said.
The habits of any millennial is different compared to the rest of the generation. Millennials are more likely to sleep with their smartphones close by. About 51 per cent of the older millennials visit social networking sites during the workday. They prefer messaging to making calls. They are more likely to buy mutual funds online. Millennials are also more likely to stream services like Netflix and Hulu.
Higher expenses mean lower savings among millennials, and therefore lower retirement funds as well.
According to a study done by Schroders, the feeling of not currently saving enough for retirement is more prevalent among millennials. On average, compared to older non-retired investors, millennials save slightly less which is 11.2 per cent compared to 11.6 per cent by others of their income specifically for retirement, and to live comfortably in retirement, they feel they should be saving an average of 13.2 per cent — slightly less than older nonretired investors who feel they should be saving 14.1 per cent.
Strong message
“It’s well known that people aren’t saving enough for retirement but this study shows that even those who are established investors are not putting away enough money. There’s also a strong message from those who have already retired: ‘I wish I had saved more’. The pension savings gap is further compounded by the fact we’re in an age of low rates and low returns — to reach their goals, people will need to save even more than savers did in previous generations,” Lesley-Ann Morgan, Global Head of Defined Contribution and Retirement at Schroders, said in a recent study.
Most of the savings end up in one or the other equities or bond fund, but getting an alpha in this market is also difficult.
Global markets have been volatile on the back of expectations of inflation, which could quicken the pace of rate hikes. The Dow Jones Industrial Average shed 1,600 points on a single day in early February, marking its biggest daily decline in history. The index corrected around 10 per cent from its high, before stabilising.
“After a successful year, our clients want to maintain positive returns with a more balanced approach, and that’s where our approach lies in 2018. Investors are looking for a wide variety of options within a volatile market including options, futures, shorts, and hedging instruments, while still maintaining their exposure to equities. Our clients are willing to take more of an active role in terms of going long or short in the markets, but fundamentally we feel that there is still a lot of potential in equity markets,” Bin Hendi said.
Political sphere
The Dow index has been on a gaining streak for nearly a decade, and managed to give 30 per cent returns to investors last year.
“Last year, there was a lot of noise in the political sphere which had a massive impact on the markets. Hence, we diversified our strategic asset allocations to focus on select themes within equity markets, although we did not necessarily reduce exposure,” Bin Hendi said.
“This year, we will see the same level of engagement with clients but they will be looking at diversification beyond equities. Therefore, we will have more focus on gold and various other absolute return strategies which allow investors to manage market volatility by allocating a small portion of their portfolio to these sectors,” he added.