Like every generation going back to the baby boomers, the latest financially active generation of millennials are identified as having particular trading habits that distinguish them from the generations preceding them. While all the identified traits are of course generalizations, we consider a few typical profiles of millennials, to gain some general insight into how they invest.
Jason (aged 25) just graduated from his law degree at UCLA with a tuition debt of US$40,000. His older brother who graduated from his college ten years earlier only had a debt of US$15,000. Obviously he’s not happy about it, but then he’s also gone on to start his own business with a few friends, something his older brother hasn’t dared to attempt.
Most define millennials as being born between the years of 1983 and 2000. They have the unenviable distinction of entering adulthood having accumulated the highest level of debt. Almost 71% of students graduate from college with a debt that on average is over US$35,000, approximately 64% higher than students graduating from college ten years earlier. At the same time millennials are also known for their entrepreneurial spirit. While this can be a blessing by spurring them to innovation and great productivity, it can also be a curse, as their income stream can be unpredictable. However as Forex trading can involve an unpredictable and variable pay-check, this should be more palatable to a millennial, who in any case is not used to depending on a steady pay-check.
Ethan (aged 32) remembers very clearly how his dad’s finances took a hit during the global financial crisis. In the fallout from this event, he saw his parent’s net value plummet by 80% and the devastation this caused. Not surprisingly, Ethan is very conservative, even skeptical about trading in financial markets. While he can still see overall benefits to be made from trading, Ethan chooses to trade with low risk, very safe investments, that tend to give modest returns.
Despite being entrepreneurial and already accustomed to personal debt, millennials are risk averse and tend to choose conservative trading products. While minimizing risk is ideal, it does tend to yield very modest returns. Potentially more problematic, is that it stems from the inclination to use little if any leverage. Good leveraging in a varied and healthy diversification of assets would help lower the risk of incurring a significant loss, as financial capital is spread throughout different investments not linked to each other. At the same time, taking a singular path of conservative trading also undermines the best aspect available to millennials, the luxury of time. The power of compound interest is possibly the strongest financial amplifier (along with leverage), but to maximize the impact requires time. For millennials undertaking low risk, low return products, they are undermining the opportunity offered by compound interest, and setting themselves up to take higher risks later, when they have less time to recoup if disaster strikes.
Amanda (aged 29) is one tech savvy lass. As the social marketing coordinator of a financial services institution, Amanda enjoys keeping abreast of all the software, apps and tools available for online traders. She enjoys the real time aspect of many of these tools and has grown accustomed to having her actions implemented immediately. But sometimes she later regrets those decisions made on impulse.
Millennials, more than any other generation of trader, are able to utilize multiple and diverse types of technology in their trading. When they invest, they make use of the full suite of technology tools available, from mobile apps, to social trading platforms and website information resources. They expect real time access to trading and these expectations are usually met by companies that are keen to demonstrate their technological prowess with ever evolving new platforms. However the expectation for real time access can mean patience often runs thin, quickly. The access and immediacy of needs also creates the real potential for executing poorly thought out, impulse trades. However, when kept under control, their tech aptitude and desire for constant information represents a huge potential benefit, allowing them to seize ideal moments to trade not generally available to less technology integrated age groups.