Investing, the Millennial way

Millennials are changing the way we think about investments. The oldest members of the Millennial generation are approaching 40 this year. By 2020, they will be the largest segment of the adult population and as they replace Baby Boomers in the workplace and dominate spending for the coming decades. Not only is their earning potential growing as their careers progress, they are also set to inherit trillions of Rands from their baby boomer parents.

Millennials live in a different world to their parents. Theirs is a world facing a number of megatrends, including resource scarcity, climate change, digitalisation and growing inequality, that need to be tackled with an urgency that did not exist for previous generations. Their awareness of the need to tackle these issues colours their attitude to investing and gives them a different perspective to previous generations.

Focusing on our responsibilities

Most millennials don’t consider money as the sole success factor and they give more value to brands that act in a socially responsible manner. That doesn't mean that they are not interested in making money, rather they don't think that is the only function of their investments. They are concerned about environmental and social issues, and they expect the companies they work for and invest in to be the same.

A 2018 responsible investing survey by Nuveen, a global investment manager, suggests that 92% of millennials want all of their investments to be responsible, showing that a focus on environmental, social and governance (ESG) issues is no longer a “nice to have" option for one part of a portfolio. And as big data research group CB Insights points out, “to attract and retain this next-generation of investors, advisors need to offer sustainability, clean energy, and social impact investing strategies". The companies likely to benefit from this trend will include those involved in clean, innovative transportation models, digital native brands and e-commerce leaders.

Investing for influence

Integrating the sustainability concerns that millennials highlight across portfolios will form a central part of future investment strategies. Progressive financial institutions believe that returns will be driven by these factors over the next three to five years. Al Gore, speaking at Lombard Odier’s 'Rethink Responsible Capital' symposium, emphasised that “The profound changes that accompany the climate crisis pose specific financial risks to the holders of potentially stranded assets such as fossil fuels. France for example, has said it is going to outlaw any further exploration. India has said that within 12 years 100 per cent of their new cars will need to be electric vehicles by law," said Mr Gore. Products and services that enhance the quality of life today without borrowing resources from the future have the highest growth potential.

Personally, and digitally

Many millennials want to be able to use digital platforms in managing their money as in everything else, but that does not mean they don't still want personalisation. The personalisation that they prefer encompasses new options such as crowdfunding and other fintech offerings, as well as more personal recommendations.

Today's investors are also more keen to know what they're getting and how much they're paying for it – pricing transparency is more important to them than previous generations. "A lot of millennials have a negative perception of financial advisors," according to Deloitte. "To overcome this negative attitude, wealth management firms initially need to focus on the pricing transparency."

Progressive wealth managers understand that sustainability is a key driver of returns. If clients carefully select their wealth manager, they can include companies in portfolios based on solvency, business practices and sustainable business models. By working with a wealth manager who can select the right company, returns will be delivered.

Technology solutions

A new breed of wealth-tech start-ups is offering new digital solutions. In recent years companies have arrived on the scene offering advice based on artificial intelligence and big data, micro-investment platforms, or trading solutions based on social networks.

Examples include an American personal finance company, which gives users access to a network of expert investors, or another American artificial intelligence company, which offers a machine learning system that allows investors to access financial analysis in everyday language, and a French start-up that offers personalized advice and monitors investors' financial health. These solutions, however, do not eradicate the need for the personal touch, which still forms a vital element of any advice.

The same but different

In many ways, millennials want the same things as their parents when it comes to managing their money… but while the goal remains the same, they want a different approach from their wealth managers – one that is more transparent, digital and values-driven.

But the fundamentals of sound investing will remain. Find good companies that are sustainable in all senses of the word – well run, attuned to the ways the global economy is changing and likely to thrive in the years to come. What is clear, is that sustainability will form the central theme of future investment.