Modern investors must keep an eye on several emerging trends that can significantly impact their portfolio development strategies. These include the increasing focus on ESG (environmental, social and governance) investing, technological advancements and alternative assets.
These new investment opportunities offer new avenues for growth and diversification, while also aligning with socially conscious values.
Millennials and Gen Z
Modern investment options are increasingly becoming the centre of a new generation’s financial lives. This generation’s outlook on investing will have a significant impact on the financial markets, shaping not only their own portfolios but also the investment landscape of tomorrow.
Recent data reveals that many new investors are leaning towards growth investments, as opposed to traditional value-oriented strategies. This trend seems to be driven by a combination of factors. First, the younger generation has witnessed rapid technological advancements in numerous sectors, so they are naturally attracted to companies with high-growth potential. This generation has also grown up with the internet, social media, and streaming services, so they are used to getting information fast.
Additionally, Gen Z is passionate about making a difference in the world, so they are drawn to companies that prioritise ESG criteria, such as those supporting sustainable energy or addressing climate change. They’re also interested in socially conscious initiatives that support women, minorities, and people from disadvantaged backgrounds. They are also more likely to divest from industries that contribute to economic inequalities and environmental degradation, such as fossil fuels, tobacco, or weapons manufacturing.
Lastly, they are keen to make use of fintech solutions, such as online trading apps and robo-advisors, that simplify the process of researching and trading stocks and shares. These technologies allow them to access the global financial markets with a few taps on their smartphones. To stay informed and ahead in this evolving landscape, consider exploring resources like LevelFields.io, which provides tools and insights tailored for modern investors. This ease of access is transforming the way they manage their investments, and it’s an important trend to watch.
The young generation is carving out its own niche in the investment world, and their choices will influence broader market trends and lead to innovations in investment products and strategies. Their preference for growth investments reflects their optimistic, tech-savvy, and forward-thinking character and will play an important role in shaping the future of the investment landscape. In addition, their unique financial behavior highlights the need for greater transparency and sustainability in modern investments.
Socially Conscious Investing
As millennials and Gen Z enter the investment market, they’re shaping the future of investing by making choices that reflect their values. They’re leaning towards more traditional investments like stocks, while also embracing newer, innovative forms of investing such as socially conscious assets. By combining both approaches, Gen Z is poised to change the face of the investment world as it grows increasingly sophisticated and accessible.
The rise of online trading platforms, robo-advisors and other financial technology is democratizing access to the stock markets. As a result, more people are able to make the types of small investments that were once only available to large institutions. These changes have also made it easier for people to make broader shifts in their investing strategies.
Investors can choose from a wide range of investment vehicles to meet their specific needs, with many options focused on sustainable and responsible investing (SRI). These include both exclusionary and proactive strategies. Exclusionary strategies focus on what not to invest in, such as avoiding companies that produce weapons or are involved in the alcohol and tobacco industries. The divestment movement that occurred in the 1980s is a classic example of this type of investing strategy.
Proactive SRI strategies, on the other hand, are aimed at finding companies that align with your values and beliefs. These include the purchase of shares in companies that prioritize environmental sustainability, promote social justice and respect human rights, and develop safe and useful products. Examples of these types of investments would be investments in companies that provide fair wages for women and minorities, and support alternative energy sources.
While there is growing interest in SRI, some investors may not fully understand the impact their investment decisions have on society. It’s important for investors to consider this broader impact when considering how to structure their portfolios and make strategic investment decisions.
The key to success is balancing the desire for growth with the need to address societal issues. Investing in high-growth companies can be an excellent way to diversify your portfolio and achieve long-term goals, while still keeping a close eye on the impact of your investments.
Fintech
Fintech companies are using technology to disrupt virtually every aspect of financial services, changing how people store, save, borrow, invest and move their money. Examples include robo-advisors, personal finance management (PFM) apps and online lenders that allow customers to apply for credit or loans with a few clicks on their phones.
These fintech companies are challenging the traditional banking industry and making it harder for large banks to compete with them. Trying to keep up with them requires significant investment and an overhaul of processes, decisions and corporate structure. Many banks are choosing to partner with fintechs and serve them as a way to speed up implementation and reduce costs. Others are building their own internal fintechs to help them compete with outside threats and self-disrupt before it’s too late. In addition, investments in “tangible assets” like wristwatches, designer furniture or works of art can offer solid returns and are not tied to the volatility of stock prices.
Those looking for a more sustainable investment option may want to consider an exchange-traded fund (ETF). These funds provide diversification and low costs by combining shares of different companies into a single bundle, which is then traded on the market as one unit. Many ETFs also incorporate green or socially conscious themes, which can be an attractive prospect for those interested in incorporating sustainability into their investments.
A knowledgeable financial professional can be an invaluable resource for Gen Z investors, helping them navigate the complex world of modern investments. This generation has a strong desire for financial independence and savvy technological adeptness. They can benefit from partnering with a financial professional who can help them decipher emerging trends and build portfolios that align with their goals and values. By guiding them through the nuances of investing, from stocks to ESG (Environmental, Social and Governance) investments, they can ensure their financial futures are as secure as possible.
Alternative Assets
Any asset that does not fall into the conventional categories of stocks, bonds and cash is considered an alternative. This includes private equity, private debt, venture capital, hedge funds, real estate, commodities and collectibles. Investing in such assets has become increasingly popular for investors seeking diversification and potentially higher returns, as they tend to have lower correlations to standard asset classes.
However, these investments can often carry more risk and turbulence than traditional assets. Moreover, they typically require a longer investment horizon. As such, it is important for prospective investors to thoroughly research these types of investments before making a commitment.
Private Alternatives have long been rewarded with a ‘illiquidity premium,’ which can be described as excess return over corresponding public benchmarks. This premium is created through thoughtful asset selection, operational improvement and timing of entry and exit relative to public markets. Given that low birth rates, rising life expectancies and a lack of workplace savings have led to retirement insecurity for many global citizens, it is highly likely the demand for excess private alternatives returns will continue to increase.
Until recently, private investments were only accessible to large institutions, sovereign wealth funds and family offices with the ability to write checks of $10 million or more. However, the industry is rapidly evolving to allow more accredited individual investors to participate in private opportunities.
For example, some new vehicles are allowing HNW individuals to invest in private equity through crowdfunded initiatives that leverage the capital of other individual investors to fund projects. This is a great way to access the opportunities that were once reserved for the very rich.
The investment landscape is changing rapidly, and understanding these trends can help guide your future planning. However, investing involves risk and you should always consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only community of executives from successful accounting, financial planning and wealth management firms. Council members represent a broad range of experience and expertise in the areas of tax, strategy, planning and execution. For more information about the Council, visit www.forbesfinancecouncil.com.