As property prices continue to climb, many millennials are turning to other investments like ETFs to make money.
Exchange traded funds or ETFs typically track an index or basket of stocks as opposed to investing in an individual stock, and, like normal shares, ETFs can be bought and sold on the ASX.
In other words, rather than an investor having to decide which particular share to buy, an ETF can be used to buy the market in a single trade.
Looking purely at the data, we can see a clear affinity for ETFs amongst millennials.
CommSec data tells us that millennials presently account for 25 per cent of all ETF trades in the Australian market.
This compares to just 25 per cent of Gen X investors and 17 per cent of Baby Boomer investors.
But when we analyse the data via gender we can see that millennial men make up the lion’s share of investments in ETFs in Australia.
About 16 per cent of millennial ETF investors were female in 2015, with the number growing only slightly to 17 per cent in 2016, according to Investment Trends data.
So, why should female millennials consider ETFs?
Cost: Millennials are likely to have less disposable income to use in their investments, compared to their Gen X or Baby Boomer counterparts.
As a result, investment vehicles without a minimum spend are often more appealing.
ETFs have no minimum investment and you can buy as little as your broker will allow per trade. Brokers in Australia typically allow minimum trades of $500.
Furthermore, a key advantage to using ETFs is that they are a passive vehicle. This means they are formula or rule-based, so ETF providers do not need to pay a team of highly paid investment gurus to pick stocks, with the associated cost savings passed onto investors in the form of quite low management fees.
Self-directed solution: According to the Deloitte report ‘Millennials and wealth management’, millennials prefer self-directed investments, and they expect state of the art technological platforms that allow them to access investments quickly and easily throughout the investment cycle.
ETFs tick both of these boxes, as via a trading platform, such as an online broker, would-be ETF investors can easily browse and invest in
their chosen product.
Capital isn’t locked up: The millennial demographic of 18-35 is one that likely has some significant financial decisions in their future.
Whether it’s a wedding to fund, a long overseas adventure, future family planning, or study costs, it’s understandable millennials are unsure about locking up their capital for a set period of time.
As already noted above, ETFs can be bought or sold on the ASX during the day, just like shares, so your investment can be readily cashed up for when you need it.
Diversification and variety: Australians typically have non-diversified portfolios, with the 2017 ASX investor study revealing that 75 per cent of investors only hold Australian shares. Diversification is important as it helps to spread investment risk, which means investors are less exposed to negative impacts from a specific event or market trend.
There are currently over 200 exchange traded products on the ASX, covering Australian and international equity markets, bonds, currencies and even commodities like gold and oil.
The ETF industry in Australian currently has just under $30 billion in funds under management, and is growing at a fast pace. According to a recent CommSec report, local issuers expect a massive conversion of investors into ETFs in the next five years, tripling the market’s size and disrupting the wealth management industry.
With this strong forecasted growth trajectory, now is the time for millennials to assess whether an ETF investment is right for them.