Business

Investing according to your generation

SSL in the Money

with DANIEL WONG

Wednesday, April 18, 2018

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THINGS YOU SHOULD CONSIDER

It is no secret that persons may have a different outlook or perspective on investing depending on their age, experience and risk appetite. Since time immemorial we have evolved and adopted based on our past experiences and the experiences of previous generations.

To bring it more into perspective as a millennial, I think I can speak on behalf of us all when I say we have become more cautious and skeptical by nature when it comes on to investing.

Too often have I heard fellow millennials say “I am afraid to invest because my parents lost their money to Olint, Cash Plus and the fly-by-night Ponzi schemes alike.”

On the other hand, previous generations such as the baby boomers seem to have taken a more loyalist approach, investing in only what they know – pension plans and bank certificate of deposits.

Meanwhile, Generation Xers have adopted a more instinctive and emotional style of investing due to experiencing global economic crises like the Great Recession in 2007.

Bear in mind that both these generations, unlike millennials, had little knowledge of investing being passed to them and lacked ease of access to information growing up.

Yet, the common denominator among all the generations is a general lack of awareness of investing and investing wisely, based on one's stage in life. The aims of the artice are to therefore assist in guiding you in your investment decisions, considering your life's stage, and what you ought to keep in mind.

Baby boomers are from the generation that was born between the 1940s and mid 1960s, considered now to be our senior citizens and most of whom should be retirees by now. This is the generation that ideally would be reaping the benefits of all their hard work, accumulated savings and investments.

As a result baby boomers, at this stage in their lives, would now typically stay away from long-term and high-risk or aggressive investment options. It is recommended that baby boomers should, therefore, take a more conservative approach to investing – seeking security options like bonds, preference shares or stocks in companies that promise to provide some income through dividends.

At this stage, they should opt for liquidity in their portfolio to sustain their lack of income and to cover any unfortunate yet inevitable medical expenses. They should also consider investments geared towards preserving capital that will provide a good enough rate of return to beat inflation.

The Generation X cohort is also sometimes referred to as the “sandwich generation”, being the successors of the baby boomers and predecessors of the millennials. This generation has mostly been characterised currently by the fact that they are the caretakers of both their parents and children simultaneously.

On the other hand however, the Generation Xers can typically look forward to being at a stage of their lives where they are peaking in their careers and wealth creation. This generation however, risks not investing enough for themselves in preparation for retirement due to perhaps mortgage obligations and their kids' college tuition. Therefore, adopting a more moderate approach to investing seems to be the practical thing for them to do in order to combat the dilemma that this period of their existence offers. Striking the right balance in their investment portfolio, having enough low- to moderate- and high-risk investments, while at the same time putting a foot in long-term investments and shorter-term liquid and risk averse investments ,like ETFs, is the key for this generation.

Finally, the “great” millennials (born 1982- early 2000s), and (admittedly with much bias) the movers and shakers of today have the most access to information but, ironically, are from the generation with the most apathetic investors. A heedless bunch with all the information at their fingertips, little commitment and more time to ameliorate loss, millennials are typically short-sighted and impatient, wanting profits in a very short period.

In all fairness to them, however, due to a lack of experience coupled with an entry-level salary and possibly a student loan, investing is not the most appealing financial option. Consequently, the millennial investors tend to be more risk-averse when in actuality they should be more aggressive, focusing on growth due to their longer-time horizon.

If I could re-coin a term for us millennials, it would be the “privileged generation, albeit lacking experience. Millennials have much to gain from their predecessors, learning from their experiences to chart a more informed approach to investing.

An obvious question arising from all this is, does one's risk appetite increase or decrease with age? Traditionally, we may conclude that as we get older we should become more risk-averse and take a conservative approach to investing.

However, one's risk tolerance level may very well be dependent on personal and individual financial standing, and not necessarily based solely on age. Either way, as evolving beings we must adjust our investment strategy as the world changes and as we get older and more mature in our investment decision-making.

Consider also that what may have applied well to the generations before may not necessarily be applicable or the best decision now.

No matter where we may fall on the generation timeline, there is now access to information that makes it easier for all to make more informed decisions, as well as a global standardising of stricter regulations being enforced to protect us as investors and maintain our market confidence.

Daniel Wong is an internal control associate at Stocks and Securities Limited.

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