Young bucks are taming the market - Ecsponent€¦ · Young bucks are taming the market The current...
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ecsponews Investing with the times Young bucks are taming the market The current generation of young adults are demanding more from product providers, including the investment world, catching them all off guard. Newsletter ▪ December 2017 The generation born between 1980 and 2000 is better known as the millennials and is changing our world on all levels. Also known as Generation Y, they are technically skilled entrepreneurs, raised with an independent attitude. They break away from traditional types of investment which have been the norm for the Baby Boomers (born between 1946 and 1964) and Generation X (born between 1965 and 1979). Save and invest earlier On average, Generation Y starts saving and investing early in life, even as early as 22. This is unlike the Baby Boomers who, on average, only started saving at around 35. According to Fidelity, one out of five millennials already save 15% or more of their earnings, which means they’ll end up with huge retirement portfolios of R10 million and more one day. This is partly due to the fact that they have seen the effects of previous generations’ poor money management skills and they do not want to make the same mistakes. Many millennials started their careers when markets collapsed in 2008/9 and are vigilant to avoid becoming victims of risky markets and investments. The older millennials are also aware of the dotcom bubble of 2000. (In case you missed it, read more about the characteristics of an investment bubble here: www.goo.gl/eb99Vf) Saving and investing are part of their psyche and ironically they follow in the footsteps of their great grandparents who lived more frugally and planned ahead during the depression years. Financial literacy It is significant that this generation has also had the best education, with 43% being financially literate and fully aware of the benefits of saving and investing from an early age. They accept responsibility for their financial destiny. Previous generations often worked for the same employer for decades and relied on earning a fixed income and pension. The millennials do not have this kind of security and protection. Hence, it comes as no surprise that 71% of millennials in South Africa say they will be financially more successful than their parents, according to an international survey by Deloitte. Many older millennials have also now reached the peak of their earning potential and will inherit enormous wealth from their parents, the Baby Boomers. In the US, it is estimated to be almost $30 trillion. In South Africa, however, the younger millennials don’t have much money and are struggling to find their feet. Many have study debt, are struggling to establish their own businesses and more likely to lose their jobs. Choose fixed rates According to this poll, they look for financial stability in an unstable world, are very aware of the value of money and implications of costs, and wish to become financially independent. The millennials therefore prefer fixed investment rates from stable companies and will not easily put their money into speculative investments. Not attached to owning property This generation has caught many market sectors off guard by showing little or no interest in some asset classes, like property. Assets like furniture or cars have only utility value and access is important rather than ownership. Single millennials, in particular, would rather use taxis or Uber than buying a car. Instead of accumulating earthly possessions, millennials collect experiences. Freedom of choice is key, which is why they spend more time and money on maintaining a healthy lifestyle, on travel, adventure and sport. They don’t want to spend their free time maintaining a home and hence often make a financially sound decision about home ownership – preferring to rent rather than buying a property. Technology is their friend Companies that offer poor service tend to meet their match with this generation of savvy social media users. They are glued to their cell phones/technology (90% of millennials will open their mobile phone every 15 minutes) and will not hesitate to share their views about poor service/products. Investment products should therefore be technologically accessible and preferably provide access to robo-advisors. Every day counts This generation has the advantage of having time on their side. Someone who has invested R10 000 by the age of 20, will have accumulated R697 567 by age 60, if invested in Ecsponent’s Class B preference shares. If invested for a further ten years, this amount will grow to R2 015 967.This is the beauty of compounded growth: The Eighth Wonder of the World.
Transcript of Young bucks are taming the market - Ecsponent€¦ · Young bucks are taming the market The current...
ecsponewsInvesting with the times
Young bucks are taming the marketThe current generation of young adults are demanding more from product providers, including the investment world, catching them all off guard.
Newsletter ▪ December 2017
The generation born between 1980 and 2000 is better known as the millennials and is changing our world on all levels.
Also known as Generation Y, they are technically skilled entrepreneurs, raised with an independent attitude. They break away from traditional types of investment which have been the norm for the Baby Boomers (born between 1946 and 1964) and Generation X (born between 1965 and 1979).
Save and invest earlierOn average, Generation Y starts saving and investing early in life, even as early as 22. This is unlike the Baby Boomers who, on average, only started saving at around 35.
According to Fidelity, one out of five millennials already save 15% or more of their earnings, which means they’ll end up with huge retirement portfolios of R10 million and more one day.
This is partly due to the fact that they have seen the effects of previous generations’ poor money management skills and they do not want to make the same mistakes.
Many millennials started their careers when markets collapsed in 2008/9 and are vigilant to avoid becoming victims of risky markets and investments. The older millennials are also aware of the dotcom bubble of 2000. (In case you missed it, read more about the characteristics of an investment bubble here: www.goo.gl/eb99Vf)
Saving and investing are part of their psyche and ironically they follow in the footsteps of their great grandparents who lived more frugally and planned ahead during the depression years.
Financial literacyIt is significant that this generation has also had the best education, with 43% being financially literate and fully aware of the benefits of saving and investing from an early age.
They accept responsibility for their financial destiny. Previous generations often worked for the same employer for decades and relied on earning a fixed income and pension. The millennials do not have this kind of security and protection. Hence, it comes as no surprise that 71% of millennials in South Africa say they will be financially more successful than their parents, according to an international survey by Deloitte.
Many older millennials have also now reached the peak of their earning potential and will inherit enormous
wealth from their parents, the Baby Boomers. In the US, it is estimated to be almost $30 trillion.
In South Africa, however, the younger millennials don’t have much money and are struggling to find their feet. Many have study debt, are struggling to establish their own businesses and more likely to lose their jobs.
Choose fixed ratesAccording to this poll, they look for financial stability in an unstable world, are very aware of the value of money and implications of costs, and wish to become financially independent.
The millennials therefore prefer fixed investment rates from stable companies and will not easily put their money into speculative investments.
Not attached to owning propertyThis generation has caught many market sectors off guard by showing little or no interest in some asset classes, like property.
Assets like furniture or cars have only utility value and access is important rather than ownership. Single millennials, in particular, would rather use taxis or Uber than buying a car.
Instead of accumulating earthly possessions, millennials collect experiences. Freedom of choice is key, which is why they spend more time and money on maintaining a healthy lifestyle, on travel, adventure and sport. They don’t want to spend their free time maintaining a home and hence often make a financially sound decision about home ownership – preferring to rent rather than buying a property.
Technology is their friendCompanies that offer poor service tend to meet their match with this generation of savvy social media users. They are glued to their cell phones/technology (90% of millennials will open their mobile phone every 15 minutes) and will not hesitate to share their views about poor service/products. Investment products should therefore be technologically accessible and preferably provide access to robo-advisors.
Every day countsThis generation has the advantage of having time on their side. Someone who has invested R10 000 by the age of 20, will have accumulated R697 567 by age 60, if invested in Ecsponent’s Class B preference shares. If invested for a further ten years, this amount will grow to R2 015 967.This is the beauty of compounded growth: The Eighth Wonder of the World.
South Africa: [email protected] • 087 8080 100 Fintech Campus, Corner of Botterklapper & Ilanga Streets, The Willows, Pretoria, GautengSwaziland: [email protected] • +268 2417 1616 • 7 The Gables, Ezulwini, SwazilandBotswana: [email protected] • + 267 391 8756 • Sixth Floor, Exponential Building, Plot 54351, New CBD, GaboroneAll content is for information purposes and should not be regarded as investment advice. ecsponent.com
The home owner, bank and estate agent might argue:
Your home creates stabilityEstate agents are quick to proclaim that a home is essential to give children a sense of stability. However, your children will never ask whether your name is listed on the title deed. They want a home, regardless of whether it is rented or owned.
Stability is never guaranteed as our lives go through many different phases - from birth to marriages, dismissals, divorces and death. In times of change, the tenant is flexible and ready to pursue opportunities, while the homeowner’s hands are shackled by cement.
Value increasesHome owners like to boast that buying their home was a good investment when they bought it for say R1 million years ago, and it is now worth R1.5 million. The R500 000 profit is, however, the gross profit. Expenses should still be deducted to calculate a realistic return. Other asset classes, like shares, have outperformed the return of residential property over the last decades. A typical example: Real house prices have dropped over the last 16 months, according to the latest FNB house price index, and have shrunk by 0.9% respectively in August and September this year.
You’re investing in an assetHouse-related costs are often justified because they are applied to maintain your asset. However, these can escalate to the point where they are equal to or higher than the cost of similar rental properties in the area. Think of maintenance, repairs, construction, property taxes, homeowner levies (where applicable), municipal costs such as garbage disposal and sewerage, insurance, commissions and, of course, opportunity costs.
You pay off your own placeThe bank will argue that you are paying off an investment in an asset and at the end of the term the house belongs to you, while as a tenant, you own nothing. What they neglect to say, is that the mortgage can extend over a 30-year marathon period, where the monthly instalment initially covers a fraction of the capital repayment.
An asset not an investmentThe previous headings show that buying a home is an emotional decision and one should never make an investment decision based on emotional reasons. A house is just a combination of cement, brick and sand and an “asset” that depreciates over time. You cannot compare it to a true investment. An investment is an asset you purchase to earn an income or that increases in value so that you can sell it for a higher price (profit).
The test is whether you will be willing to sell it. Many home owners will refer to their house as an “investment”, but will not sell it because they are sentimental about the property. This makes it an asset, nothing more.
A true investment enables you to control what you own and offers you the chance to buy/sell it when the time/price is right. A home owner’s capital is trapped and it is difficult to sell when times are tough.
As a tenant you can determine the difference between your rent and what it would cost you if you had to pay off the bond. Take that amount and invest it where you earn a good return without any hidden costs. For example, look at Ecsponent’s Class B Capital Growth Plan, which yields 11.2% per annum or 14%, if you invest for five years. This is gross growth of 70% after five years, without involving any cost and without any real effort.
Does owning a home = a good investment?Your home is your castle and a safe haven that you create for your family.
▪ pays attractive returns that beat inflation ▪ is tax-efficient ▪ attracts low costs to preserve cash reserves
▪ diversified and not limited to one market in one geographical area
▪ is easy to trade without attracting excessive cost ▪ is not at risk of overcapitalisation.
But is it also an investment in the true sense of the word? Does it really make sense to plough lots of money into your home in the hope that you will make a solid profit one day? Why are so many South Africans devoted to brick and mortar, when it might be wiser to rent?
What makes a good investment?A good investment has some or all of these characteristics:
