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Plan Gen Z: A new generation of young, active investors is diving into markets
A generation of digital natives, tooled up to their eyeballs with online instruments and physically grounded by the Covid-19 pandemic, are dipping their toes into a new hobby – investing. With holiday plans foiled and stay-home arrangements in place for both work and class, more young people have taken to exploring the digital landscape for making money.
Banks, brokerages and wealth advisers tell The Business Times that while a greater number of Gen Z youth – ranging between 18 years of age and into the early twenties – have been getting into the scene over the past few years, the jump was especially prominent this year.
IFAST Global Markets (iGM), the wealth advisory arm of mainboard-listed iFast Corp's Singapore subsidiary iFast Financial, has seen account openings by Gen Z grow from 200 per cent to 400 per cent on average between February and November this year, albeit from a small base, compared to a year ago.
Similarly, robo-adviser StashAway saw a 3.6 times increase year-on-year in the total number of local Gen Z investors in the third quarter of this year, and a 63 per cent jump compared to the previous quarter.
Freddy Lim, co-founder and chief investment officer of StashAway, says: "Gen Zers are very driven by online… one of the things is that they like to try out digital stuff very early," and the wide range of investment platforms available today makes it "very easy for them to start".
Mr Lim adds: "(Gen Z youth) do set life goals - they tend to be more open to setting a goal and then saving up for it. And because they do that, the question then comes to invest the savings."
Brokerage firm Tiger Brokers found that over the last five years, the average fund deposited in a Gen Z's Tiger Brokers trading account was US$3,435. Data from OCBC similarly revealed that the average amount invested by Gen Z youth into its RoboInvest platform remained relatively stable in Q2 and Q3 this year at S$3,500 , indicating that the age group is "investing steadily, and more frequently".
On where Gen Zs are getting the capital to invest, Maybank Kim Eng's regional head of retail brokerage, Lok Eng Hong, says that across the Asean region, "what is common" is that the initial funds Gen Z youth receive from their parents "are what has enabled them to start investing".
He adds: "Some of them (give) their children an option (of) receiving shares or a physical gift for their birthday or Christmas present."
Gen Zers that BT spoke to add that they are investing out of savings accumulated from doing part-time jobs, or from salary earned during National Service (NS). Most also say that they prefer holding on to their investments, rather than actively trade them.
That these young people are investing with a long-term view - and have armed themselves with information and news - is also borne out by patterns in their investing behaviour. While on the one hand they have zeroed in on "transformational" businesses, they are also keeping an eye on safety.
An analysis done by Tiger Brokers on about 100,000 Gen Z investors around the world trading on its platform from 2015 to 2020 found that 45 per cent of them prefer long-term stocks such as Apple and Boeing, while 35 per cent of them prefer real estate investment trusts (Reits) and exchange-traded funds (ETFs) across the United States, Hong Kong and Singapore.
It also found that in Q3 2020, the most traded stocks by Gen Z in Singapore were Tesla, Apple, NIO and MedTech International, all high-profile stocks that hogged headlines in recent months.
Eng Thiam Choon, chief executive of Tiger Brokers (Singapore), says that stocks favoured by the 18-24 demographic tend to contain products or belong to industries that will "change our lifestyle" in the future, particularly those in the technology sector. Additionally, the brokerage firm has been "actively seeing" requests from its users to include cryptocurrency trading on its platform, and sees a growing interest from Gen Z investors in cryptocurrency investing.
"These are what they're more familiar and comfortable with… (and) will be interested to (know) how to invest in it," says Mr Eng.
Yet, at the same time, more Gen Z investors have also taken to blue chip stocks. Data from OCBC showed that during the circuit-breaker period in Q2, the group invested the most frequently into the bank's Blue Chip Investment Plan (BCIP), which saw a 65 per cent growth in number of investments made quarter-on-quarter. Counters in its BCIP platform include the Lion-Phillip S-Reit ETF, Nikko AM Singapore STI ETF, Singapore Airlines, Singtel and CapitaLand Integrated Commercial Trust.
OCBC's head of wealth advisory Kelvin Goh also notes that there has been greater interest for stocks in the environmental, social and governance (ESG) sector.
Not surprisingly, Gen Z investors tend to display a higher risk appetite compared to older demographics. Maybank Kim Eng's Mr Lok says that Gen Z investors are "less risk averse in exploring new opportunities such as trading in derivatives and option products", and given the large amounts of data they have access to and the longer screen time that they spend per day, they are also "often more active in trading".
On the other hand, older generation investors tend to be more "conservative" in their choices, seeking "capital preservation, dividend yields and dividend incomes through blue chip stocks, banking stocks, industry leaders, index-linked stocks, Reits and bonds", notes Mr Lok.
As 23-year-old investor Tan Cai Jin, whose investment portfolio consists of endowment plans, ETFs, equities, and forex trading, puts it: "When we are young, we can afford to take higher risks, because we have time to earn (the losses) back."
He adds however that while higher risk portfolios offer higher returns, one also needs to be mindful of the type of investments made.
He bought his first shares in Koufu at 22, investing some S$2,000 from his savings after reading up about the company's dividends and observing how its local businesses were performing. He then sold them early this year, raking in a profit of 13 per cent.
"When (investing) is done with some information, it is calculated risk. If not, it can be likened to gambling."
Tips for first-time investors
In making their first foray into investing, Gen Z youth can, for a start, make use of digital wealth platforms to identify their personal risk tolerance, says StashAway's Mr Lim. Following that, they can then invest in a globally diversified multi-asset portfolio with digital investing platforms.
Investing one's monthly savings is also important, as one should avoid leverage as far as possible, adds Mr Lim. He notes that while it's all right to dedicate some percentage of one's total savings to specific securities, it is also necessary to "be mindful of making allocations that (are) compatible with overall personal risk tolerance."
However, Mr Lim stresses the importance of first building a "rainy day fund of six to 12 months" of one's expenses before thinking about making investments, especially given the uncertain economic conditions amid the current climate.
This is echoed by OCBC's Mr Goh, who says that "having a base is important" to weather the storm in case markets tank, like what happened earlier this year due to the Covid-19 pandemic.
"(You) should at least ensure that there's that reservoir or pocket of money that you can fall back on. Investments should only start on the basis that you have built upon that pool of money," he adds.
In terms of assets, having a diversified portfolio would be a good starting point.
Adeline Ong, an investment adviser at iGM, points to funds that cover broader based themes and sectors such as the Asia-Pacific region or next-generation technology, as well as ETFs that track indices, such as the Hang Seng Tech Index.
"The importance of investing as a Gen Z is actually your time and diversification; they work in great tandem," she adds.
Needless to say, due diligence is key before making any investment.
When Lai Zhi Khong, 23, started investing two years ago, he had already read through three investment books in the hundreds of pages - the bulk of which he read during his free time while serving his NS.
"I think reading widely and consistently is extremely important in investing. There's a lot of (knowledge) to be gained from reading investment books or financial news because then you'll be updated on the latest trends in the financial world," he says.
Most of what he learnt, however, he gained through experience. "Just like how we learn how to cycle by cycling and not just merely reading a manual on cycling, (investing) also requires actual experience in the game."
When Mr Lai first started investing, one of the greatest difficulties he faced was the ability to control his emotions.
"I wasn't even investing. I was trading. I would buy and sell after a few days due to nervousness and inability to control emotions," he said, adding that he would stay up till the wee hours of the night to track market movements over in the US, scalping about two to three per cent with each trade.
"It was ridiculous… typically people buy and hold ETFs, but I was trading (them) to scalp those tiny gains because of nervousness."
Over time, with more experience in the game, Mr Lai learnt how to manage his portfolio better, and adopted his own strategy of investing. He also grew to accept that some losses were inevitable and are part and parcel of the learning process.
"While fear and greed are still present, it does not affect me as much as it used to… investing is a long-run game, not a get-rich-quick scheme."
For Sze Jing Kai, the greatest hurdle for him - having started investing when he was 19 - was the lack of technical knowledge.
"At that point in time, I just had a very basic accounting and finance knowledge… When I looked at a company it was very much just looking at the revenue, costs, net margin… It's very much on the surface level," says the 23-year-old.
Upon entering university, he joined the NUS (National University of Singapore) Investment Society - a student-led finance and investment society that publishes detailed research reports across different asset classes and organises workshops, competitions, and other investment events for the wider student community to promote financial literacy.
Through understanding the different financial concepts and models, this allowed him to do more in-depth analysis and gain a "comprehensive" overview of companies, says Mr Sze, adding that he was able to apply valuation models such as DDM (dividend discount model) and DCF (discounted cash flow) to make more informed decisions on whether a company makes for a good investment.
Yet, for investors today, the wealth of data, omnipresent social media and rapid fintech advancements can prove to be a double-edged sword.
While there is a trove of information out there to help Gen Z youth kickstart their journey in investing, this also makes it harder for them to discern reliable sources from speculative ones.
OCBC's Mr Goh says that a "personal bugbear" of his is when investment-related advertisements that appear on social media platforms promise high returns but fail to highlight the risks involved.
"It's important to have the flipside in terms of what's my maximum loss (and) how much could I potentially get hit… one needs to have the overall perspective," he adds.
Tiger Brokers' Mr Eng notes that Gen Zers also need to be wary of blindly jumping on the bandwagon and getting enticed by headline news or hearsay.
"When you catch a wave, it's always (at the) second half of the wave. So if you don't come out earlier, you always also catch the downturn and the retracement," he says.
To avoid such a situation, one should constantly keep abreast of happenings in the markets and understand the factors contributing to a particular trend, he adds.
Seeking guidance from a more experienced investor can also be beneficial, especially as young investors try to figure out the ins and outs of investing.
In fact, iGM's Ms Ong tells BT that the Gen Z investors she has met are "taking investment cues" from their parents - who are her clients - and are interested in assets that mirror those of their parents, "having seen success role models in them".
She adds: "Wealth transfer from older generations would propel Gen Z to greater economic power."
Never too late
As the adage goes: Time is money. The industry experts that BT spoke to agree that the huge advantage Gen Zers have would be having time on their side, and that it is always good to get a headstart when it comes to investing.
OCBC's Mr Goh says: "You can manage your resources, but you can't buy back that one year that you could have started investing."
Similarly, StashAway's Mr Lim notes that "the power of compounding is only unleashed with time in the market": the earlier that Gen Z youth set their life goals and start saving - as well as investing these savings towards their life goals - the more they can earn.
Indeed, this statement rings true with 23-year-old Yap Choon Hooi, who began investing when he was 21, driven by the idea of maximising his cash and wanting to earn money "smart, not just hard".
He says: "Our money is losing value everyday due to inflation, and we need to let our money work harder than us. Just a few per cent a year doesn't seem much at first, but that few per cent every year can make a huge difference upon retirement."
The limited capital that younger investors may have is another aspect that Sean Jou, 23, says can prove to be beneficial.
He says: "Starting earlier… it's a time to experiment and try the different methodologies that are out there with limited downsides, because the quantum that is invested is much smaller than what it would be once you have real earning power as a full-time (working adult).
"I think it is more forgiving when you put small amounts and whether you win or you lose, it is a chance to hone your personality, (manage) your emotions and be able to adopt a more comprehensive evaluation of any investment opportunity that arises."