Coronavirus has recorded some of the most volatile markets on record and resulted in a mixed reaction from all investors. Even now, as markets begin to recover, there is little way of knowing what the future investment landscape will look like and therefore how portfolios should be positioned. 
It has been an even more challenging time for retail investors – those who invest directly in assets and funds rather than via a wealth manager. However, some have fared better than others, and this is particularly apparent when comparing investment approaches across different generations.
According to a study of UK retail investors we recently conducted, millennial and Gen Z investor returns have outstripped those of baby boomers (“boomers”) over the past few months. Over one-third of UK millennial investors (38 per cent) have seen their investments grow in value compared to boomers (15 per cent) since the start of the pandemic lockdown.
There are a few reasons for this. One major factor is that younger investors appear to be more actively engaged with their portfolios when compared to older, more seasoned counterparts – and this is having a positive effect on performance. While often characterised as disengaged and adverse to investing, millennials appear to be subverting expectations through the use of online platforms, a desire to diversify their portfolios, and a willingness to take financial advice.
Active engagement with investments can help mitigate risk
Investors who engage with their portfolios via technology are almost twice as likely to have made gains over the past three months. 69 per cent of investors aged 26 to 37 report managing their assets via online platforms and, of these, 44 per cent have seen the value of their portfolios increase over the past quarter. By contrast, only 28 per cent of investors aged over 55 make use of digital investment services. Of those boomers who do not utilise online platforms, 57 per cent saw the value of their portfolios decrease over the same time period.
Whereas older generations are more likely to rely on analogue investment information, such as monthly factsheets or face to face meetings with their wealth manager, the findings suggest that a greater familiarity with technology has given younger groups the ability to respond more flexibly, and in real time, to changing market trends. As the pandemic has forced those who are able to work from home, digital investment channels have grown in importance.
Proactivity and diversification key to minimising losses
There is no doubt that in periods of volatility, investors need the ability to make strategic adjustments to their portfolio. The importance of diversification in a portfolio is one of the oldest investing adages. UK fund managers are regularly assessed on how diversified their portfolios are, across both geographies, sectors and asset classes, and it is a primary consideration for fund buyers advising their clients.
However, it seems that not all direct investors are taking the same precautions. Again, younger investors have been more likely to seek to strengthen their portfolios by defensively repositioning their investments. Since the volatility caused by the pandemic began, nearly a fifth (17 per cent) of millennials have reallocated capital to different sectors (vs 9 per cent of boomers) and 25 per cent have changed the markets in which they are invested (vs 10 per cent of boomers) in order to curb losses.
Strategic asset allocation has also played its part in protecting portfolios. While few investors across the board have put more money into markets during the pandemic, amongst those young people who have, 24 per cent have increased their allocation to equities and 22 per cent invested more money in corporate bonds. By contrast, 43 per cent of older investors have made no changes at all to their portfolios in the past few months.
The complexities around investing at different life stages may explain this discrepancy. While younger demographics with a longer term investing horizon can afford a higher appetite for risk, opportunities for portfolio rebalancing are more complex for investors in the decumulation phase who are limited in where they can find, for example, income in current market conditions. While a buy and hold strategy is certainly advisable, and it is important not to be overly reactive to market movements, especially in times of stress, it is worth taking steps to ensure your portfolio is sufficiently diversified at any investment stage.
Those seeking advice are seeing positive financial outcomes
There is of course concern that non-professional investors are more susceptible to overreacting to volatility, which in turn could jeopardise longer term financial plans. However, it would be unfair to accuse millennial and Gen Z investors of excessive rebalancing in reaction to market swings or simply trying to “buy the dip”. The research shows that, amongst millennials, a third are likely to use an online investment service which includes a mix of adviser managed decisions and their own. Equally, millennial investors are also just as likely to consult traditional investment advisers (34 per cent), alongside online platforms, as boomers (36 per cent).
The pandemic has fundamentally changed the investment landscape and investors need to adapt to what is likely to be a torrid six to 12 months, at the least. As the generational gulf between investor behaviour widens, those who are more inclined to look beyond borders, sectors and traditional investment tools are best positioned to weather the storm.
Richard Flynn is UK managing director at Charles Schwab. The views expressed above are his own and should not be taken as investment advice.