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Data Snack: In today’s bear market, younger generations are the leading investors

  • Millennials have emerged as the most prominent digital investors across the world, with a taste for fractional trading.
  • As inflation continues to rise, investors have started to prefer fixed-income bonds to even the strongest equity investments.

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Data Snack: In today’s bear market, younger generations are the leading investors

2022 has been a turbulent year for equity markets globally. Tickers show a bear market as leading stocks plunge and the threat of a recession looms. Thus far, the S&P has dropped 21% overall, and the Nasdaq Composite, too, is down by 33% — representing the worst six-month start to any year since 1970.

Investors new to the market are now experiencing their first bear market. While this has demotivated some, many young investors are still going strong, according to new data from DriveWealth. The fintech's proprietary data shows that millennials have in fact stepped up their investing, hoping for long-term rewards on today's cut-price investments.

As trading remained trendy among the generation during this dip, the report termed 2022 as the year of the millennial trader.

Global trading trends

Due to market conditions, fewer new investors entered the market in the first half of 2022 than in the second half of 2021. Similarly, active investors also traded less. This remained consistent across generations. 

For younger generations in particular, last year’s meme stock frenzy caused many to start investing. While not as many entered the market this year, millennials and Gen Z still led the charge in terms of new investors on DriveWealth’s platform. In the first half of 2022:

  • 46% of new account openings were done by millennials
  • 32% of new account openings were done by Gen Z
  • 18% of new account openings were done by Gen X
  • 4% of new account openings were done by boomers

As markets went down during the first half of the year, investor attitudes soured. What’s perhaps more interesting is that younger consumers didn’t run away from the market. As a matter of fact, they led account openings throughout the world. 

As younger generations led new account openings, Gen X overtook Gen Z in terms of average number of trades, while the flip was true for average trade size. 

Millennials, however, led all age demographics in these metrics. While the average trade size across generations was $310, for millennials, it stood at $373. This is the first time the average trade size for the generation has gone up since the first half of 2021.

In the first 6 months of 2022:

  • Gen Z averaged 7 trades per funded account, with an average trade size of $373.
  • Millennials averaged 19 trades per funded account, with an average trade size of $373.
  • Gen X averaged 13 trades per funded account, with an average trade size of $206.
  • Boomers averaged 12 trades per funded account, with an average trade size of $284.

Digital-native millennials are driving the most traffic on DriveWealth’s investment platform. The increased prevalence of financial information and the ease of investing via digital platforms means millennials are not as fearful entering the stock market. Technology is making it easier to invest, engage with a brokerage account, receive financial news and information, and find financial advice from investors on platforms such as YouTube.

Michael Taylor, founder of a company that teaches people how to trade the stock market, Shifting Shares, breaks down millennials into two groups, with 25 as the median age. In his experience, while millennials are not the most active participants in the stock market, they are becoming an important force.

“Millennials 25 years and older typically have greater participation rates in the stock market. In 2021, 37% of all of my students were millennials, while 90% of them were 25 and older. The younger part of the millennial generation seems a bit disconnected from the stock market. Generation X (ages 39-55) makes up 52% of my students, but the millennials are fast catching up,” Taylor told Tearsheet.

Another factor that Taylor thinks has weight is the volatility of crypto. Gen Z is right on the cusp of cryptocurrency investing, and although millennials have a significant representation of the crypto market, they are discovering the greater stability and predictors available in the stock market.

The emergence of digital-native investors has given birth to an entire ecosystem of fintechs – something that is expected to have seismic impacts on investor behavior for years to come.

“Millennials are motivating fintechs and neobanks to innovate their product suite to improve access to U.S. equities and financial literacy tools in markets around the world,” DriveWealth's chief product officer, Gayathri Rajan, told Tearsheet. 

“Our recent partnerships with companies like Toss Securities, Goalsetter, and Sproutfi are a testament to the amount of power millennials have to shape the financial ecosystem at large.” 

Globally, the top traded stocks this year on DriveWealth’s platform have thus far been Apple, Tesla, Amazon, Vanguard 500 Index Fund ETF, and Nvidia. 

Investment trends in EMEA, LATAM, and the US

In EMEA, fractional trading is the highlight of 1H22. While millennials followed the global trend in the region, emerging as the top traders by placing 69% trades in the time period, other generations – Gen Z in particular – are closer to catching up in EMEA.

Millennials accounted for the most new accounts opened across generations, at 46%. Gen Z, in comparison, made up 40%; Gen X 12%; and boomers 1%. However, while the YoY percentage of new investors increased among Gen Z, Gen X, and Boomers, millennials saw a decrease. 

DriveWealth’s data show that with younger generations in EMEA, fractional trading rose in significance – 80% of all trades across generations had a fractional component to them. This shows that the region’s younger generation look more favorably upon fractional trading during downtimes, while older generations stick to buying whole shares.

In EMEA, the top traded stocks were Tesla, Apple, Amazon, Nio, and Meta.

LATAM stepped away from the global trends a little bit. While total trades in the US and EMEA decreased, in LATAM, they actually went up. As markets went down and global investment appetite fell, LATAM continued amping up theirs. 

Millennials remained the top traders here too, placing more trades and creating more new accounts than any other generation. In fact, here they placed the majority of the total trades, at 53%, and made up almost half of all new account openings, at 48%.

The top traded stocks in LATAM were consistent with globally top traded stocks, with Apple, Tesla, Amazon, Vanguard 500 Index Fund ETF, and Nvidia dominating the field.

In the US, investment was down, younger generations participated more, and diversified portfolios dominated. Millennials were top traders again, placing over half of the total trades, with all other generations placing over 25% fewer trades. They also had the highest percentage of account openings, at 45%, while the second-highest were Gen Z at 27%. Among Gen Z investors, however, percentage openings decreased YoY, while the opposite was true for all other generations.

Not only have millennial investors increased in numbers, but they've also become more sophisticated investors.

“Digital-first investors aren’t swayed by meme stocks anymore – they’re keeping their eyes on macro stories,” Rajan said. “During the first half of 2022, data suggests that investors throughout the U.S. opted for relatively less risky fixed-income bonds over equities in light of recession concerns.”

Another example of how big-picture stories are shaping investor behaviors can be seen amid this year's spike in gas prices. Across multiple regions, there was a resurgence of interest in investing in electric vehicle companies.

Most notably, Americans have lost appetite for their favorite equity investments, FAANG — Facebook, Amazon, Apple, Netflix, and Google. Investors have looked favorably upon fixed-income bonds and electric vehicle stocks. Behind this change in preference is the rising inflation and gas prices, according to the report. As investors became wary of equity investment, their appetite for fixed-income bonds increased, with high interest rates contributing to the shift.

The top traded stocks in the US were Vanguard 500 Index Fund ETF, Vanguard Tax-Exempt Bond Index Fund ETF, iShares Short-Term National Muni Bond ETF, Vanguard Extended Market Index Fund ETF, and Vanguard Developed Markets Index Fund ETF.

Investors like bonds in times of high inflation because they provide a predictable income, in addition to paying interest twice a year.

“Inflation affects fixed-income assets like bonds as interest payments from these bonds will become less competitive,” Bill Ryze, a certified Chartered Financial Consultant and a board advisor at Fiona, told Tearsheet. “High inflation levels can undermine the returns from investment strategies that rely on fixed payments.”

Furthermore, if fixed income bonds are held to maturity, consumers can get back the entire principal; therefore, they offer a way to preserve capital while investing. Protection of investors' capital and the changing interest rates in favor of a higher-value predictive landscape for fixed-income bonds make them more attractive.

“The volatility of the political climate, global security, and the stock markets (including crypto markets) is making a small but stable return look more appealing,” Ryze said.

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