Retirees and baby boomers have had a lot to worry about since the coronavirus threatened their investments. But turns out one age group that could suffer most as a result of COVID-19 are their kids and grandkids. Here’s why.
The next generation of Australian investors will remember these years. While they can still find good investments in 2020, it’s scary to think young investors’ appetites and investment strategies may be forever skewed as a result of COVID-19.
But that could be the reality. Here’s why.
4 reasons the coronavirus could hurt young investors the most
1. Unemployment during COVID-19 is worst for young Australians
Thanks to COVID-19, the unemployment rate is hurting Australia. But surprising to some, the most pain is being felt in the 18-23 year old bracket.
In April, there was a 10 per cent increase in unemployment in that age group, whereas over-23 year olds saw an increase in unemployment of only 3 per cent. Nearly half of young people are employed in hospitality, retail and arts, and these are the industries to have suffered most during COVID-19.
No income means no bank loan. Financial institutions are reluctant to lend to someone without a job or cash flow. This will hurt those youngsters looking to jump into the property market.
Another result of lost jobs is lost savings. Workers between 18 and 23 could lose around $32,000 as a result of Australia’s first recession in 30 years, according to Ernst & Young.
For those who stand by the “Time in the market” adage, this is a sad thing to see. Why? Because a lack of income and savings in early years could delay young Australians from partaking in investments and opportunities to grow their long-term wealth.
2. Suspicion kills young investors’ appetite for risk
Millennials are the suspicious generation. Many young people turn their noses up at authority and are even more susceptible to conspiracy theories (particularly in uncertain times). Their latest suspicion is what a risky asset actually is.
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Stock markets are seeing dark days and news headlines are scaring off property investors. Young investors are suspicious that market turbulence could continue – hey, things were rosy until a bat in Wuhan threatened global economies – and are now cautious with investments.
As a result, buy and hold strategies appear more difficult than ever for young investors. They’ll need to stick to their guns and not let nerves spoil their long-term investments.
3. This is young investors’ first experience of an economic crisis
Australia’s seemed like a bulletproof economy, boasting 29 years of consecutive economic growth, until a nation-wide lockdown brought it to its knees.
For many young investors, they are entering the workforce for the first time or have only recently done so, and don’t have the experience on their investment CV to whether storms such as this. They may have only invested in one or two asset classes and haven’t built the diversified portfolio that has kept many of us investors afloat during COVID-19.
4. Young people are usually the first adopters
Typically, young people are the earliest adopters of new technology and innovations. In many respects, they have aided the rise and fall of many phenomenons, like social media and extensive use of smartphones, because they are more opinionated, computer savvy and frugal than the average person.
Change and innovation usually come as a result of necessity. So, when we see a big pandemic, or world war, or mass movement of human behaviour, there is change – really fantastic change.
But without a salary or confidence in their future, young Australian trendsetters may not have the means or propensity to be first adopters of IT, infrastructure, property, and finance innovations, which will no doubt come as result of COVID-19.
There is potential for this to have drastic impacts on the economy, when young Australians refuse or are unable to participate in the early take up of new innovations.
What should young investors do during COVID-19?
Young investors might want to look at the investment fundamentals that have kept their parents and grandparents growing wealth for decades.
For one, diversification is the safety net of most investors during times of uncertainty. Providing they still have the means to invest, spreading risk to different asset classes and investments could be the saving grace for young investors, as it has been for the generations before them.
They can even create an investment mandate which sees their money invested in safe companies, or properties with safe tenants, like those in essential services.
But their biggest investment will be in mindset. Risk aversion and the temptation to sell – or not invest at all – could have them missing great investment opportunities in the near future.
We’ve seen economic crises come and go. But just because young investors haven’t, shouldn’t mean their trepidation gives way to avoiding excellent investment opportunities.
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Properties & Pathways is a dynamic commercial property investment firm. We handpick our properties throughout Australia to reduce risk and protect investor return. The strategy works. Our completed syndicates have provided investors an average return of 19.22% pa. Book a free consultation to find out how you can invest alongside us.