Young investors need to invest in shares to help them generate enough money for a deposit to buy a home, says the CEO of investment platform Pearler, Nick Nicolaides.
Nicolaides says (courtesy Weekend Australian):
[Young Australians] understand that if they're going to eventually get into property, if that's what they want, then being an investor in shares is part of the ladder.
It just has to be these days, when it's taking 10 years or more to build a deposit.
CoreLogic estimates that it now takes 10.3 years for buyers on a median household income to save a 20% deposit, assuming an annual savings rate of 15%.
Nicolaides says it's no longer enough to have a good job and save money in order to buy a home.
You need to be not only furthering your career by changing jobs every three to four years.
You need to be saving, you need to be investing.
ASX survey reveals buying a home a key objective
Saving the deposit is one of the biggest hurdles that home buyers face today, and is a key motivation for some Australians to start investing in shares.
The 2023 ASX Australian Investor Study of more than 5,500 Australian adults found buying a home to live in was the primary goal of 16% of current share market investors and 31% of intending investors.
Additionally, buying an investment property was the objective of 16% of current investors and 15% of intending investors.
The Australian Housing and Urban Research Institute (AHURI) says saving a deposit was a "growing problem" amid sluggish wages growth for at least a decade and continually rising property prices.
In a report titled Pathways to home ownership in an age of uncertainty published in March last year, AHURI noted:
Anecdotally, some people have been turning to other strategies to accumulate wealth to achieve home ownership, including share investing and property investing.
Across Sydney and Perth, 42 per cent and 38 per cent of survey respondents respectively, indicated they had other investments beyond their superannuation and the property they lived in.
Three quarters of these respondents are electing to pursue non-property investments, including investing in shares, in order to build their wealth.
Even the Federal Government suggests considering investing in shares to build the deposit to buy a home.
On the moneysmart.gov.au website, it says:
If you plan to buy your house in a few years, you could consider investing.
If you're comfortable with the risk, investing in shares or a managed fund can help grow your savings.
What type of shares are young investors buying?
According to the ASX investor study, 43% of investors aged 18 to 24 owned ASX shares, 25% owned international shares, and 33% held exchange-traded funds (ETFs).
Among investors aged 25 to 49, 52% held ASX shares, 42% had international shares, and 29% held ETFs.
About 28% of 18 to 24-year-olds preferred guaranteed returns, which was the largest percentage among all age cohorts, and 46% preferred stable returns.
The next oldest generation also liked guaranteed returns (25%) and stable returns (43%) over riskier options.
Nicolaides said the average age of Pearler users was 35 and they were increasingly favouring US shares over ASX shares due to superior returns over the past two years.
Most of Pearler's users buy their US stocks via ASX ETFs.
Here are some examples of ASX ETFs that provide exposure to US stocks. The best performer among them over the past year was the BetaShares NASDAQ 100 ETF (ASX: NDQ), up 45%.
That means a young person who invested $50,000 in the NDQ ETF a year ago would have $72,500 today.
Check out the performance of ASX shares vs property prices across Australia in March.
