Well, 2020 has certainly been an eventful year, from raging bush fires to widespread pandemic panic. If one thing is for sure, we are eager to put it behind us and start afresh in 2021.
One phenomenon I will be watching in the coming year is the Millennial and Gen Z participation in the market. There have been strong catalysts this year for the massive influx, but there are also risks to this trend.
Why the trend?
Unfortunately for my young comrades (being a Millennial myself) the pandemic has hit us hardest when it comes to both unemployment and under-employment.
According to the labour force data from the Australian Bureau of Statistics, in November the youth unemployment rate increased another 0.1 percentage point to 15.6%. However, this is still lower than the 23-year record high in June, at 16.4%.
With such a high unemployment rate, the younger demographic was left sitting at home wondering what to do next.
It seems that when you mix youthful exuberance, boredom, and desperation, you get beginner investors trying their luck at share market trading. This concoction has already been dubbed the ‘Robinhood phenomenon’, popularised by the US-based fee-free trading app, Robinhood.
Data in Australia indicates that more than 40% of Millennials and Gen Zers bought shares for the first time this year, as reported in the Australian Financial Review. This is a far greater uptake than other demographics and implies these younger people were seeking a new avenue for income.
What are the risks?
When you drop a novice into a pro arena, the outcome is usually not good for the novice. It is fine to risk what you can afford to lose while gradually building up experience. When unemployed, however, what you’re risking is your next rent – or possibly (thanks to the government) your superannuation.
Unfortunately, getting rich overnight on a penny stock or pulling a full-time job’s worth of income in dividends tends to be reserved for very few people. The more common outcome is sub-optimal returns for the investor looking to make a quick fortune.
The problem (although a good problem to have in the short term) is that the market has rallied hard since the 23 March low, with the S&P/ASX 200 Index (ASX: XJO) returning just over 46% at the time of writing.
If you invested in some reasonably notable shares in March/April you would have a decent profit by now. Though the market doesn’t go up forever and beginner investors should be mindful of their exposure in the event of another bear market.
If only we had a crystal ball
To say what 2021 entails would be impossible, although it would be nice if it was a little less eventful.
There are two ways I can see it going – either the number of new young investors will go down or up with the youth unemployment rate, or Pandora’s box has been opened and the phenomenon will continue to thrive, irrespective of the unemployment rate.
It certainly will make for an interesting year ahead.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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