Young investors spooked by market crash, older investors more sanguine

•    One in four young people have been put off stock market investing by this year’s market falls
•    Whereas 9 in 10 (87%) over 55 have not changed their views of stock market investing
•    Almost three quarters of young investors have changed their investing plans due to the March crash:
o    Half (48%) are investing less 
o    More than a third (35%) are holding more cash 
o    37% plan to invest more in funds than direct equities
o    Almost a third (31%) are planning to invest more in passive funds
•    Case studies of young investors available for this story

Laura Suter, personal finance analyst at investment platform AJ Bell, comments:

“More than a quarter of young people have been spooked by this year’s market falls and put off investing altogether, our research shows*. The market volatility this year has created an age divide in how investors have reacted, with older savers being more likely to be unaffected by the crisis or deciding to invest more, while younger people have been far more scared by market falls. 

“This market volatility will likely have been the first crash many young investors will have experienced, so it’s understandable that when UK markets fell by more than 30% earlier this year it will have panicked many investors. Even those who haven’t been put off investing altogether have still been affected, with almost half of investors aged18-34 saying they will invest less as a result of the market crash. For some this may be because they have been hit financially by the Covid-19 crisis, and so do not have money to spare, while others may want to take less risk with their savings.

“Three-quarters of investors who are over the age of 55 have not changed their investing plans as a result of the market crash, while younger people have proved much more reactionary, with just 27% of investors aged 18-34 not deviating from their original plans.

“When asked about other changes they plan to make, 37% of younger people say they plan to invest more in funds rather than direct stocks as a result of the market crash, as they look to take some risk out of their investments by diversifying. What’s more, a third of young investors say they will hold more cash as a result of the market crash.”

Five tips for first-time investors:

1.    If you panicked, work out why: If your first reaction to the market falls was to panic and sell, or if you feel put off investing altogether then work out why. Did you have too much risk in your portfolio or too many assets in just a few investments? Or did you not fully understand what you were invested in and so didn’t know how those investments would react in a market fall? Whatever the reason, if you work out why then you can fix it without ditching investing altogether.

2.    Get your cash right: A third of young investors say they plan to hold more cash as a result of this year’s market falls, but make sure you get your cash levels right. If you’re just rushing to cash as a panic to investment markets falling, that might not be the right call for you. But if you realise that you didn’t have enough money to hand to easily access during the market falls, then it makes sense to hold more cash. Money held in cash should be what you need in the short-term, plus the savings you don’t want to risk in the market – but don’t hold cash just for the sake of it, as it is earning almost zero interest at the moment.

3.    Is direct stock investing for you? More than a third of young people say they will now switch into investing through funds rather than buying stocks directly. Previously investors might have taken a punt on some individual shares but this crisis may have taught them that the time it takes to monitor individual stocks is more than they can manage. You can have a mixture of direct stock holdings and funds, but just make sure you’re happy with the time and additional risk holding shares brings.

4.    Spread your investments: Some young investors may have been put off investing because they had too much money in one market or asset, and so were disproportionately hit by some market falls. For example, the UK fell harder than other markets so anyone with a big chunk of their portfolio in UK stocks would be hit harder. Make sure your money is spread between different markets, funds and asset classes.

5.    Set up regular investing: If you’ve been spooked by market falls and worry about putting money into investments at the wrong time and being hit by the market falling again, you could set up regular investing. By automatically putting money in on the same day every month you take away the decision about when to invest in markets, and also take some of the emotion out of investing – a great way to restore confidence in investing.

*Survey of 2,000 UK adults, of which 771 were investors between 23 – 26 June 2020 run by AJ Bell & Opinium
 

Survey results: