How investors of all ages could use multi-asset strategies to tackle financial and demographic issues

Key points:

  • An uncertain environment and ongoing socioeconomic transformations have left investors facing new financial and demographic obstacles.
  • It’s our view that investors need to plan ahead and look at growing their assets over a longer period to meet their investment goals.
  • We believe that having a flexible multi-asset allocation could help investors navigate across shifting economic cycles.

Millennials, defined as anyone born between 1981 and 19961, have grown up in a world with distinctly different financial challenges compared to other generations. The upshot of this divergence is that these days, younger people need to think very differently about how to manage their money.  

People of this generation have faced many financial obstacles and continue to do so. For those at the younger end, typical hurdles include ever-increasing amounts of student debt – in England, this has been estimated at £50,000 per graduate2, while in the US it is around $37,000.3

Compounding the problem within this demographic is their general approach to spending. Recent analysis has shown that within the UK, most millennials - more than 95% - admit to impulse shopping, with almost one in five doing so daily.4

Moreover, rising life expectancies, with one in three people born today now predicted to live beyond 1005, means that even increasing contributions to workplace pensions isn’t necessarily enough to ensure a comfortable retirement.

Are millennials more finance-savvy than many think?

While the indebted millennial story has become something of a cliché, various studies have shown that contrary to public opinion, many millennials are regular savers.

In Britain, 69% of millennials surveyed by digital bank Revolut squirrel away an average of almost £174 per month, as do 64% for those across wider Europe.6 Among 1,000 US millennials surveyed by LendEDU, an average of $480 is saved every month.7

But given the prolonged backdrop of low interest rates in the UK and the US – the US Federal Reserve recently cut rates for the first time in a decade8 – relying on cash accounts alone is unlikely to provide millennials with rich financial rewards.  

For example, over the past five years, global government bonds have achieved an annualised return of 7.30%, measured by the JPMorgan Global Government Bond Index.9 Meanwhile, global equities have returned 13.19% annually over the same timeframe, according to the MSCI All Country World Index.10 While past performance should never be viewed as a guide to future returns, it is fair to say that millennials wouldn’t have enjoyed such gains from cash deposit accounts – nor indeed would any other generation – in the current environment.

Regardless of where people are at in their life, we believe that multi-asset strategies can get peoples’ cash working harder for them and potentially provide a simple, yet effective solution to help investors reach the most common investment goals today –  be it capital growth and/or generating a steady income stream.

Thinking long term

No matter the investment goal, we believe investing should be approached with a long-term mindset – and ideally the earlier investors get started, the better. For instance, assuming an average annual growth rate of 4.5%, if a millennial started investing $100 a month at the age of 25, by 65 years old, assuming they make no withdrawals, they would have a portfolio worth more than $128,000. However, if they commenced at 35, their pot would be worth $73,000 – or $55,000 less.11

In our view it makes sense for investors to plan and look to steadily grow their assets over time. Given the often highly unpredictable nature of financial markets, multi-asset could be a good solution for millennials – and investors of all generations – who are seeking consistent returns and steady income streams from global investment markets.

Why multi-asset investing?  

To achieve this, multi-asset investments look to combine the most attractive qualities of multiple asset classes including equities, fixed income and commodities, which investors can use to target the financial outcomes they value most. Asset class performance can vary, underscoring the need for investors to broaden their horizons in the search for steady returns.

By having an allocation to a range of investments with different risk/return attributes, we believe this investment approach could help investors navigate across shifting economic cycles. In addition, multi-asset can offer investors a less complicated, less time-consuming and less expensive route to diversification through one of two ways: they can use the strategy either as a one-stop solution, or use it as a core holding to which an investor can then add single asset class bricks to benefit from short to medium-term opportunities or specific themes.

A flexible approach to potentially benefit from evolving market conditions

We aim to offer investors long-term growth from market opportunities across a highly diversified investment universe. However, we are cognisant of the challenge around asset allocation, namely being able to mitigate the changing macro environment in the short term. So, we believe that a flexible asset allocation that can be tailored according to the market environment at the time provides us with investable opportunities, as well as the potential to mitigate some unforeseeable risks.

In an ever-changing macroeconomic environment, being able to achieve their investment goals is becoming more of a distant dream for investors of all ages. A flexible allocation in a multi-asset strategy could deliver the sustainable returns needed to make it a reality.

 

Read more on multi-asset:

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Coping with financial market volatility: Lump sum versus regular investing tactics
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Multi-asset investment views – June 2019 – Trade war remains front and center
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Recession, populism and the end of quantitative easing
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Source:

1 Michael Dimock, Defining generations: Where Millennials end and Generation Z begins, Pew Research Center, 17 January 2019
2 Higher Education funding in England: past, present and options for the future, Institute for Fiscal Studies, 5 July 2017
3 Josh Mitchell, Student Debt Is About to Set Another Record, But the Picture Isn’t All Bad, The Wall Street Journal, 2 May 2016
4 Millennial money statistics, Finder UK, 15 March 2018
5 What are your chances of living to 100?, Office for National Statistics, 14 January 2016
6 Rupert Jones, Don’t believe the hype about millennials and money, data suggests, The Guardian, 11 May 2019
7 Mike Brown, Retirement vs. Coffee, Dining Out, Netflix & Many More: Where Do Millennials Put Their Money?, LendEDU, 8 July 2018
8 The Fed cuts rates for the first time in over a decade, The Economist, 1 August 2019
9 FactSet, Morningstar, returns in sterling, as at 30 June 2019
10 FactSet, Morningstar, Returns in sterling, as at 30 June 2019
11 Based on Investor.gov US Securities and Exchange Commission, Compound Interest Calculator. Provided for illustrative purposes only and does not constitute an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

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