08May

New research by wealth management and stockbroking firm Charles Schwab UK has suggested that younger investors are much more likely to favour cryptocurrencies over equities when it comes to investing their money.

Their findings show that 51% of Millennial and Generation Z investors make use of cryptocurrencies in their portfolio, compared to 25% who have invested in equities, long regarded as the traditional solution for medium to long-term investment. Back in May 2020, 44% of the same group invested in cryptocurrencies.

There is clear evidence of a generation gap, with Charles Schwab also saying that just 8% of investors aged 55 or over adopt a strategy that includes cryptocurrencies.

The research also found that 49% of young investors find it difficult to make decisions about which products to choose, while as many as 70% are unsure as to how to adapt their investment strategy to reduce the risk of losses.

Last month, the Financial Conduct Authority expressed concern about the number of younger investors who were taking out risky investments, often without the capacity to withstand losses that would be desirable for cryptocurrency investors.

Charles Schwab UK managing director Richard Flynn said:

“Digital platforms and the sheer volume of financial information available today has made it much easier for young investors to trade and cryptocurrencies seem to be the flavour of the month.

“It is important to remember that these are speculative assets that don’t fit within traditional asset allocation models, as they are neither a traditional commodity, such as gold, nor a traditional currency.

“While the prospective returns are tempting, investors should be aware that it is just as susceptible to supply and demand but will not necessarily have the inherent value behind it.

“Like any trades, some people will make money on cryptocurrencies and contracts for difference. If young investors are looking to adapt their strategies to protect against losses, a diversified portfolio, balanced across asset classes and sectors is a more sensible, time-tested approach.

“We would encourage any new, inexperienced investors to learn as much as possible about different assets prior to making any investment, especially if they find it difficult to make investment decisions.”

 

The Charles Schwab results come at the same time as another study from Aviva, which suggests that many people who don’t use a financial adviser might believe themselves to be financially confident but might still lack knowledge of key areas.

Amongst the respondents who described themselves as being “financially confident”, as many as 45% thought that there was no tax relief on pension contributions, while 28% were unaware of their likely state pension age.

Amongst those who didn’t have an adviser, only 16% thought that they would benefit from having one. Conversely, 64% of respondents who already had a financial adviser said they had benefitted as a result.