Mind the knowledge gap – can young investors beat old?

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All information is correct as at 30 June 2021 unless otherwise stated.

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Are older investors better than their younger peers? You bet.

Rubbish, I hear you say. Grandpa will be left in the digital dust. But what do most of the richest people on the planet all have in common?

They’ve all been investing for decades.

Investing is a test of nerves and knowledge, and experience is an asset you simply can’t buy.

This article isn’t personal advice. Investments can fall as well as rise in value, so you could get back less than you put in. If you’re not sure if an investment is right for you, ask for financial advice.

How times have changed

Investing is more accessible than ever. Ten years ago the average HL client was in their mid-50s. Today that average is seven years younger. Lockdowns with not much to do, combined with hype from social media platforms has driven attention from a new wave of investors.

With a decline in final salary pensions and poor annuity rates, we have no doubt managing our investments in retirement will become the norm. More people switching their money on and taking charge of their financial future is a great thing.

Some say younger traders are just in it to make a quick buck. But that doesn’t explain the rise in the search for greener investments by these new market participants. Many are budding long-term investors. More people are looking to allocate their money to both make a return, but respond to global challenges like climate change, disease and inequality. This isn’t a short-term game.

However, a survey of new investors by the Financial Conduct Authority (FCA), the UK’s financial services regulator, found a mismatch. Nearly half of the people they asked didn’t see “losing some money” as a risk when it comes to investing. But nearly two thirds said a big investment loss would have a negative impact on their current lifestyle.

Calm seas never made a good sailor

Risk is an essential part of investing. It’s unavoidable. Higher-risk investments can make us greater returns, but you have a greater chance of making a loss too.

Losing money in markets really hurts, but it can teach us valuable lessons if we’re willing to look through the short-term pain and refocus on the long term. Remember, investors who’ve been doing this a while have had their fair share of ups and downs.

The key here is to not lose faith in the power of investing when you might need it most. Use what you learn to your advantage when thinking about a long-term strategy. Learning from our mistakes early in our investment careers actually puts us ahead of grandpa.

Use your head start wisely and start working towards a more resilient financial future.

Don’t follow the crowd

The past year or so has been a wild ride for more than just markets. When it comes to investing, it’s become a cautionary tale that headlines and social media noise are usually just that – noise. If something sounds too good to be true, it probably is.

President John F Kennedy’s father, who was very wealthy in his time, was fabled to have sold his investments when his shoeshine would offer him stock tips. We’re not suggesting you hang up your boots today. But we think he was on to something about risks rising when certain stocks, sectors and markets get really popular.

We might not have shoeshines today, but we do have social media influencers.

It can be incredibly difficult to ignore the crowd sometimes, especially when they’re raving about a potential ‘winner’. Fear of missing out, or FOMO as the influencers might say, is a very real thing. But don’t get drawn in. If you’re investing in something that’s popular, you could be paying a higher price for the investment too.

Investing is personal. We each have our own set of goals and plans for the future. If you’re following what others are doing, you’ll probably end up deviating from what matters most – your own plan. Making an investment decision based on what others are saying or doing might feel right now, but is unlikely to help you over the long term.

A diversified portfolio is key

One of the most successful investors of all time, Warren Buffett, said “I make plenty of mistakes and I’ll make plenty more mistakes too.” Mr Buffett’s company doesn’t just own a single investment though.

Diversification is an investing essential to help manage any bumps in the road.

We use diversification to help smooth out the ups and downs a portfolio could go through if you hold just one, or a few investments. Whether it’s types of companies, types of investments – like shares, bonds, and property – different parts of the world, or investment styles. There are lots of ways you can do it.

Picking individual companies isn’t always the answer – it’s certainly not the easiest way – to start diversifying.

Don’t underestimate the power of investing in funds. Let professional fund managers do the stock picking for you, and own hundreds of investments to reap the rewards of investing while nicely spreading your risk.

Take a look at our Wealth Shortlist – a collection of funds we've researched and chosen for their long term potential.

Get rich slowly

For what newer investors might lack in experience, they can more than make up for in time. Mr Buffett didn’t become a billionaire overnight.

Compounding is the phenomenon that can lead to great gains over time. Investing gives us the ability to make gains on top of the gains you’ve already made. Remember, a 100% gain twice over isn’t a 200% gain – if money doubles twice, it’s quadruple the initial amount.

As long as you’re diversified, what you buy isn’t always the most important factor. How much you invest and how long for are far more important.

Warren Buffett hasn’t chased the hot stocks to try to get ahead. His first investment was in a boring old oil company when he was just 11. He’s 91 this year.

Start early and keep adding as you go. You’ll thank yourself later.