How Millennial investors defied the socialist stereotype

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Q: Aleks Nikolic, you are a member of this generation of new investors, and you’ve taken the decision to be quite public about that journey and to create content on social media about it. What got you really passionate about investing?

AN: I recognised that saving wasn’t going to cut it. I wasn’t going to be able to afford a house, and I wasn’t going to be able to have the lifestyle that my parents had had by just sticking money in a term deposit with a wish and a prayer. So, I started investing because I saw it as a real vehicle to wealth. You know, at the end of the day, I love my job, but my salary is set by my managers and there’s no way to increase my wealth unless I started investing. So for me, it was like how do you secure a future? I’m from the generation of the GFC and COVID-19. If you think we’re anxious, it’s probably because of some of those things.

My parents migrated here and back then, property was the investment of choice and the sharemarket was seen as gambling. I want to change that for people who also didn’t grow up with that kind of financial literacy at the dinner table.

Q: So this sort of vision that you’re outlining, where it really speaks to a kind of financial responsibility, it’s not a ‘get rich quick’ type mentality. But nonetheless, you know, it is still noteworthy and perhaps surprising that this generation is has taken to it so quickly, given that there was that perception that Millennials and Gen Z were interested in redistributing wealth, not creating it.

Q: So, Alex, what do you think it is that has really tapped into the psyche here? Is this a generation that is more prudent than people were thinking, and what might be the reasons for that?

AN: I absolutely think that there are risk-takers in every generation. And there are people who are going into this for the right reasons. I mean, we’re seeing incredible amounts of accessible financial products – ETFs being one of them – or listed investment companies, if you want to be a little bit old-school.

Ten years ago, one in 10 ETF investors was female. Today, it’s two in five, and it’s expected to reach parity in five years. If you put GameStop and cryptocurrency to one side, I think the majority of wealth is going into places that are prudent and that makes sense for the vast majority. But I think GameStop makes a good article headline.

Q: Let’s talk about passive ETFs because these products seem to have really resonated with this generation. Glen James, in your view, what does this stem from? Is this really just a function of the economics of low-cost products and the type of investor that we’re talking about here? Or is there something about a passively managed, sharemarket-listed, relatively transparent entity that taps into something deeper here? Perhaps a distrust of the industry that ETF manufacturers have been able to exploit to some extent?

GJ: The data shows that on balance, the index will beat a lot of active funds. It just goes back to the accessibility piece. It’s an easy way to invest. And you can legitimately make long term wealth if you just keep shovelling money in and keep your mitts off it. And that’s kind of what I teach.

Q: Kate, you’ve written about the wisdom of the markets in the past. Are we chipping away at that with this perception that you can just go all in on passively managed investments?

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KH: There are some wonderful active ETFs now emerging, but even the passive ETF is a great, accessible and low-cost way to get people into the market. The issue is, what’s happening to the structure of markets when you get market participants shifting away from price discovery as the primary focus. Constant price arbitrage was the wisdom of crowds that created value. Now you’ve got over half of market participants who are playing a different game and buying for something other than price versus value. And so, there’s a question of are you getting the same level of price discovery and reversion to the mean that you had in previous times?

Q: Matt, as a broker, you’re well placed to kind of see the activity of this cohort. What are they actually buying?

ML: There’s no one size fits all. I think the industry’s got a capacity to be quite conflicted. It’s like “I’m a long-term investor, everyone else should be a long-term investor” or “I’m an advisor, everyone else needs advice”. Ultimately, people are going to do their own thing. And if you’ve got someone only doing long-term buying, you don’t actually have a market, with people buying and selling. And it’s really important that we actually respect, that people have got different ways to make money. Some people win, some will lose but that’s what they want to get out of the market. And they’ll make their own decision ultimately. The game has changed and people want to manage their own money. People get information from different sources. Some will read a book by Warren Buffet, some will read the [Wealth Generation] section of the AFR, some will follow people on YouTube or Instagram.

Q: Aleks, as you know better than most, this is something that the regulators have warned about several times in several different ways. It’s warned retail investors about herd mentality and following what others are doing in this kind of peer to peer formats. It’s warned specifically around influencers, where they may be straying into formal financial advice, and more recently, it’s warned companies about actually doing deals with influencers to promote their products. Is this overblown from ASIC? Or do you think that there are legitimately some worrying things happening out there on social media?

AN: I absolutely don’t think it’s overblown by the regulator, but there’s an element of collective responsibility. There’s an element of platforms having responsible product design. So, Stake doesn’t allow you to do calls and buy options _ that’s an element of responsible product design. So, there’s an element of responsibility by platforms and I think whether you want to be an education provider or not, there’s an element of responsibility there about the newsletters you put out: is it all about buying and selling and FOMO? Or is it about here are values or here’s some news about investing?

There’s also an element of government-regulated responsibility. They’re the consumer watchdog and their comments are completely right. They should be monitoring the market. And that’s really, really good to see them doing that actively. And then I think there’s an element of consumer responsibility. But no one expects a baby to run when it’s born. So financial literacy is a journey. And as a community, we don’t think it’s inappropriate for someone to have to go into driving lessons before they get a license. So putting all the responsibility on consumers to understand how markets work to invest by themselves and manage their super, I think that puts too much responsibility in the hands of consumers who are pushed a lot of messages around selling products around how to engage with the market.

I think if we recognise that there’s a level of collective responsibility about uplifting financial literacy, about making sure platforms have responsible business values, and the way that they actually build their platforms, the nudges and the ways they design their brokerages, and then also making sure the regulator is engaged and also regulates in a way that’s meaningful … I think that’s powerful.

Q: Now, they might be better capitalists than people were thinking a few years ago, but nonetheless, this generation has been very vocal about the expectation they have that investments be managed in a way that is environmentally and socially sustainable. Do you think that millennials and Gen Zers can take some credit for the way in which you know this ethical investing focus has really escalated?

KH: Well, I think the credit for the pressure that financials fear was coming more from European institutional clients. That’s the real pressure of money, the weight of money and the expectations that go with that. But whichever way it’s coming from, it is definitely real, it is happening. And, you know, we’ve always taken our voting responsibility very seriously. But now, you know, we are definitely ramping it up in our engagement with corporates, on the broader decarbonisation challenges. We’re especially pushing forward on that.

Q: Finally, I want to get some personal views on the cryptocurrency debate. Is this a legitimate asset class for young investors to gain exposure to?

ML: I think it’s great. It’s changed the way people access the markets. It’s got a new cohort of investors. I find it strange that some of those are also ESG investors when you think about the some of the impact that Bitcoin mining has had on the environment, but I think it’s another discussion. But yeah, I think it’s here to stay.

GJ: I was an investor in crypto in 2016. So, for me, I’ve had to be quite disciplined when I talk about it publicly because if someone hears Glen James say “crypto” they think I’m talking the dogma and the making of 80,000 per cent returns overnight. It’s not about that. It’s about a legitimate transfer of wealth. And I think in the future, like the super funds in the room, like what if we don’t need you as a trustee and the blockchain is the trustee? I think it’s time that we take it seriously. But drop the dogma because it’s not about Dogecoin. It is volatile and the chances of it making you rich and the answer to all your problems is very low. So we need to temper the conversation.

KH: It’s really hard to assess an asset that doesn’t have a cash flow stream associated with it. But our Fidelity sister company in the US has quite a thriving business in digital asset holdings, providing custody to their institutional clients. So, there are a lot of different ways to participate.