Millennials investing earlier, self-managing portfolios

Good news for advisors: millennials are investing at a much younger age than their parents and are accruing assets earlier. The bad news: they are also highly likely to manage their own portfolios.

Millennials investing earlier, self-managing portfolios

Good news for advisors, millennials investing at a much younger age than their parents, allowing them to accrue assets earlier. The bad news, they are also highly likely to manage their own portfolios, a new study shows.

About half of "Generation Y" has already started to manage their own portfolios. According to the TD Investor Insight Index, 48% of Gen Y investors manage their portfolios directly online and more than one third (35%) said knowing where to get trustworthy advice is a challenge.

“I’ve had some talks with that cohort and how they approach things and they are more likely to be on-line and they want tools to self-manage,” said Marc Lamontagne, a founding partner of Ryan Lamontagne in Ottawa. “The reality is that I’m 51 and a lot of my clients tend to be Baby Boomers, because they have more money that’s who we tend to deal with.”

Although Boomers have the money for his firm's fee-based services, Lamontagne said they have already been considering new ways of business to approach the younger cohort.

“We’ve looked at hiring junior associates on salary to look after that segment so [clients] could deal with someone their own age. Because they would be working on salary they could slowly build a client base," he told WP. "The idea is that even though they don’t have huge assets they would build up to become higher asset [clients].”

Alfred Chung, director of TD Direct Investing, the bank's on-line investment proposition, said the younger generation are far more comfortable with self-managing their investments on-line.

"Today's young investors are savvy when it comes to building and managing their portfolios," said Chung.  "With mobile technology… those who embrace the self-managed investing approach can retrieve real-time stock quotes, access markets and research, and place real-time trades from their smartphone."

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Younger investors are often underserved by advisors due to their low level of assets, which may often below the minimum requirement of most firms. PwC last week noted that the industry risks losing a generation of potential clients should it ignore millennials.

The TD survey found that while 18% of Gen Y investors said that they learned about savings and investments on their own, 27% said that a parent or family member taught them about savings and investing and 23% reported having an advisor.

The study found that young people are investing earlier and are often more financially savvy than their parents. The average Gen Y investor reported making their first investment at age 20. In contrast, previous generations waited to make their first investment until closer to 30, with Baby Boomers holding off until 27.

"Despite the perceived Gen Y plight, we're seeing young investors take action early on when it comes to planning for their financial future," said Cynthia Caskey, vice president and portfolio manager, TD Wealth Private Investment Advice.

"While family support can certainly help shape good financial habits, millennials face a very different financial reality than their parents did. An advisor can help cut through the confusion and develop a plan tailored to Gen Y's specific goals and unique challenges."

In the past 12 months, the average proportion of income invested by members of Gen Y was 18%, the study found. In an ideal world, they reported that they would invest 29% of their income and hope to be investing a similar amount (30%) in 10 years' time. Millennials were also more likely than Baby Boomers to say they would increase the proportion of their income invested if the stock markets improve, with 35% and 15% respectively.

The index found that retirement planning and saving to buy a home were top of mind for Gen Y. Even with balancing student debt loads and managing expenses, 50% of Gen Y investors said retirement was their top investing goal, followed by buying a home (44%), travel (43%) and achieving financial independence (42%).

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