Broker Check

Advising Young Investors

| July 17, 2018
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We’re about to witness the greatest transfer of wealth in history. Over the next 30 years, baby boomers will pass $30 trillion in assets to their Generation X and millennial children. Anyone born between 1980 and 1997 falls into this category, and their experience plays a significant part in how they invest. What sort of financial crises have they seen in their lifetimes? A lot.

  • The Dot Com bust 
  • The 9/11 Attacks 
  • The Financial Crisis of 2008

With all this volatility, it’s no wonder young investors manage their portfolios with fear and urgency, if they decide to invest in the first place. After all, losing 40% of your investments every 4-7 years (or watching your parents lose theirs) can wreak havoc on your ability to make rational financial decisions.

Instead of investing, millennials are saving their money to avoid taking a hard loss in the market, and a recent study by Fidelity backs up these claims.

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How can advisors overcome these unique challenges - and why should they?

Here are three approaches to gain the trust of young investors:

  1. Stop stereotyping young investors.

The days of stereotyping young investors into the aggressive, high-risk category are over. Sure, young investors have a head start where they can make back market losses - but is that how much risk they want to take on? Is that how much risk they need to reach their goals? The answer is maybe. A team of academics assessed Riskalyze’s research and methodology and found that 52% of 20-29-year-olds don’t fit their “aggressive” stereotype. That means if we blindly invest them aggressively, we’d be doing so outside the client’s risk tolerance more than half of the time.

Investors are individuals with unique goals. How far can this investor’s portfolio fall within a fixed period of time before they’ll capitulate and make an emotionally-charged, poor decision when it comes to their investments? If you don’t know what they’re willing to risk in the short-term, how will you convince them to stay at the first sign of trouble? 

  1. Set expectations and reinforce them continually.

In down markets, risk-averse clients are panicking about losses, and when markets are booming, others are asking, “why is the market beating my portfolio?”. It’s enough to drive great advisors insane.

Focusing on long-term goals may ultimately be the best practice, but millennials aren’t going to simply ignore every investing statement they receive until they retire. We’ve found that emotional reactions to risk are the number one killers of long-term financial plans, and that’s why advisors love using Riskalyze’s six-month, 95% probability range to powerfully set and meet expectations. It’s important to remember that long-term investors are made one short-term decision at a time.

  1. Speak their language.

These days, many millennials judge a business’ credibility on their consumer-facing tech. Whether that sounds scary, or opportunistic, sharpening the investor-facing technology experience is a no-brainer investment when it comes to younger investors.

Client-facing technology isn’t optional when it comes to working with younger individuals. Research shows that young investors expect their human advisor to have all the tools that the robots have. Hearing their advisor say “trust me” just won’t cut it. Why tell them when you can show them?

Back-office technology frees you up to maximize your time coaching clients and accomplishing all of the above. Make sure you’ve got the right tools in your arsenal to automate manual processes and focus on what you do best.

New investors are especially susceptible to the emotional pitfalls of investing, which makes their behavioral coach (Weston Banks Wealth Partners) their most important resource. With the right advice, experience, and tools - a young investor can be a fearless one!

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If you are a young investor, we would love to hear your thoughts and receive some feedback on this subject. If you know a young investor who could benefit from this information, please feel free to share this article with them. These concepts could make all the difference in their financial future! Whether you are a young or experienced investor, click on the link above to take a short quiz that will effectively evaluate your Risk Number.


Please email your thoughts and questions to [email protected] or give us a call at 919-783-8500. Follow us on social media for more interesting content or visit our Weston Banks Wealth Partners website to see how we will work together for significance.

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