Britain’s young investors outperform the old in the pandemic, as they spread their bets with investment trusts rather than picking stocks
- Those between 18 and 24 returned 17.2% since the start of the pandemic, says II
- Younger investors are opting for investment trusts like Scottish Mortgage
- Returns steadily declined with age cohorts but over-65s do most stock-picking
Young investors have outperformed all other age groups since the start of the coronavirus pandemic, after boldy backing the market’s rebound, according to a new study.
The cohort aged between 18 and 24 using Interactive Investor’s DIY investing platform returned 17.2 per cent on average over the past 18 months, while among other investing age brackets returns steadily declined with maturity.
Investors aged 25 to 34, reaped a 15.3 per cent return, those 35 to 44 got 14.6 per cent, 45 to 54 earned 12.3 per cent, 55 to 64, 9.8 per cent, and finally over-65s returned 7 per cent.
But Interactive Investor said it wasn’t backing high octane individual stocks that delivered the returns, rather investment trusts were more widely held among this age bracket and they did much less share picking.
Market turbulence over the past year has triggered a new wave of interest in investing, particularly amongst young people.
The rapid rebound of tech-influenced stocks, such as Zoom, Tesla and Amazon added early fuel to this, while at the start of this year came the meme stock frenzy – which saw shares rally off the back of social media hype.
This combined with the ever-volatile Bitcoin price prompted the Financial Conduct Authority to warn young traders about the risks involved in investing.
The regulator said young investors were being ‘tempted’ by online adverts and high-pressure sales tactics to invest in risky assets that are ‘unlikely to be suitable for them’.
However, Interactive Investor’s analysis shows younger traders are more inclined to opt for investment trusts over individual stocks.
The 18-24 cohort had nearly 34 per cent of their portfolio in investment trusts, significantly higher than the 12.3 per cent for 35-44 year olds and the average 21.5 per cent.
Scottish Mortgage Trust, Alliance Trust, Vanguard and F&C Investment Trust featured among younger investors’ top 10 bets.
Young investors are shunning individual stocks for investment trusts, which have performed well as the market rebounds
By contrast, traders over the age of 55 were more likely to opt for individual stocks like Glaxosmithkline, Lloyds and Royal Dutch Shell.
Investment trusts can offer large returns as markets rebound because they can borrow to enhance performance.
Markets have bounced back from last March’s crash: the FTSE World index produced a 26.2 per cent return in the 18 months. The FTSE All Share returned 0.02 per cent.
Richard Wilson, chief executive of Interactive Investor, said: ‘Successful investing means taking a long-term view, avoiding knee-jerk decisions, and diversifying well, which we have seen many customers doing to navigate the storms.
‘During a period when we have often heard about younger investors ramping up their risk profiles, our data suggests that the cliches might need revising,’
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|Source: Interactive Investor|
Customers based in the Channel Islands were most successful over the past 18 months, with average returns of 12.2 per cent. They were followed by Scotland and London, with returns of 11.18 per cent and 11.0 per cent while Northern Ireland had the lowest returns at 7.7 per cent.
There were also some subtle variations between men and women’s performance.
Women performed slightly better than men in the second quarter of this year – 5.5 per cent versus 5.2 per cent – which the platform said could be because they had a higher exposure to equities.
However, in the 18-month period men had average returns of 10 per cent versus womens’ 9.4 per cent.
‘There’s a lot said about male versus female attitudes to risk – and we take it all with a pinch of salt,’ said Moira O’Neill, head of personal finance at Interactive Investor.
‘Our data suggests that women and men invest along very similar lines, and with similar results. There’s some great stories out there of women investing extremely successfully – and we would like to hear more of these.’