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The generational divide over money

Each generation is shaped by landmark events which take place during our formative years.

Charles Stanley’s Investment Strategy Committee met this week – here are its conclusions.

by
Katie Tasker

in Features

09.10.2020

Each generation is shaped by landmark events which take place during our formative years. From the Vietnam War and Civil Rights Movement, to the aftermath of 9/11 and the 2008 financial crisis – each of these events has the power to influence our social discourse and our financial outlook.

For example; Baby Boomers have been largely financially successful. Benefitting from free education, a soaring property market, admirable investment values and a generous final salary pension. With the average London house costing £5,000 in 1970 it is no surprise that Boomers prioritised becoming a homeowner and believe this to be a solid investment. One which dictated by today’s economic backdrop is not as easily achievable for Millennials.

Unlike their predecessors, Millennials were seen to gradually move away from investments. This could be explained through their general lack of money to invest, a wariness towards investments triggered from the 2008 crash, or perhaps, until recently, investors didn’t understand the extent to which their environmental and social priorities could be reflected within their portfolios. Or if they did, then the financial return simply wasn’t worth the risk of the, sometimes tumultuous, market. 

We might therefore ask ourselves, is the Coronavirus pandemic the next watershed moment?

Undeniably so, and whilst it could be argued that this will be a defining moment for Gen Z more than other cohorts, they are not alone. Baby Boomers were forced to use and rely on online services with the rise of the ‘Silver Surfer’, Millennials began to appreciate the benefits of having savings and job security and Gen Z had their education compromised and career trajectories thwarted. Equally, Coronavirus is a decisive moment for markets, as varying companies and industries outperform and plummet in equal measure.

Knowing me knowing you

It isn’t always necessary to look at the bigger economic picture when trying to come to these conclusions. We may also find that individuals themselves make decisions in light of particular events, which instead dictate the economic landscape.

Focusing on the pandemic, it is interesting to question what we have learned about our own behaviours since the pandemic began. What have you noticed change most about yourself and your behaviour? I myself (a Millennial) was rather partial to a holiday or city break every few weeks to get me out and away from London. The pandemic has made me consider whether I will continue with as many trips as I previously did when and if normality resumes.

I have enjoyed taking the time to socialise with family and friends in their own homes and gardens, previously this may have taken place at a festivals, pubs or restaurants – a new re-evaluation of my spending.

I have also noticed myself naturally favouring smaller and local businesses or larger companies who have been held in good stead throughout the pandemic, praising and offering discounts to our key workers, doing the best by their employees and trying to innovate to stay afloat within the pandemic.

At this point we could ask the age-old question - is change always a good thing? There have of course been individuals who have been seriously disadvantaged from this pandemic. It is likely that at the end of this period, thousands will have lost their jobs and of course most important to remember is those that have sadly lost their lives. All of the above must be carefully considered and we must take time to learn from the crisis, innovate and retrain those who work in industries which may no longer have a place in years to come.

So, turning the conversation back to our finances and investments, should we be making changes to portfolios in light of the changes to our life? Or if new to investing, is now the time to start? With regard to the pandemic, it may still be a little early to tell but some key trends can already be seen.

Change is the new normal

A large number of companies have now adopted working from home for a number of their employees and for that, new technology systems have been required. This has also reduced the demand for large, city centre office space. With individuals now working more flexibly, is there such a requirement to live so close to large cities and town centres? Or are we likely to see housing demand within commuter regions fall. From the height of lockdown, we have also seen a number of individuals embrace online shopping. Footfall in retail shopping centres and high street stores was already declining, but the pandemic seems to have escalated a societal change to shopping as footfall remains low whilst the facilities and store openings are limited.

These are just a few of the changing trends that could be considered when evaluating your existing portfolio or looking to start your investment journey.

Typical sin stocks are not as attractive as they once were

It is worth reflecting on the societal shift toward responsible investing when considering change in the context of investing. We are now past the days where the debate “does investing in Sin Stocks (such as tobacco, alcohol and gambling companies) versus investing in companies which support the community, the environment and have good corporate governance provide superior returns?” Research articles and pieces have covered this topic at length, the outcome being that there is no need to compromise your investment return when you choose to invest responsibly.

What has however, been more appropriate is to recognise when investment themes and trends change and to take advantage of these changes in your investment strategy. Prior to the Global Financial Crisis in 2008, UK banks formed a core part of most client portfolios, providing a secure dividend and healthy share price returns. This then changed dramatically, and banks now trade at a fraction of the level they once did, increased regulation and lower interest rates mean banks’ ability to make a profit are now far more difficult.

Tobacco Companies would be another example of a changing investment trend. These companies also trade at a fraction of their levels seen a few years ago. Again, increased regulation and the rise in popularity of e-cigarettes have meant that profits in the industry are much harder to come by than they once were.

Investing with conscience

Once you have considered these changing trends, either on wider society or reflecting on your own behaviours, you can then consider how you wish for this to be reflected in your investment strategy and financial future. Do you simply wish to invest to grow the value of the portfolio? Or do you also have a preference of investing in companies that are driving positive change? Both approaches are perfectly acceptable, but the latter perhaps takes a little more dialogue or work to ensure that your principles are aligned when investing.

I would recommend working closely with your investment manager at the outset, or indeed if you are self-investing, spend plenty of time researching companies and their values to ensure they are aligned with your own. It is important to remember that you are likely to have a relatively long investment time horizon when investing and so you may be able to take a greater level of risk with your portfolio.

Find out more about socially responsible investing, by reading our guide, which seeks to provide guidance and explain the options available to you.

​Our Guide 
 

Katie is part of The Professionals Network by Charles Stanley; designed to connect and educate the next generation of investors. Read more articles from our network contributors and find out how you can be part of the network.

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Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

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