Different life stages mean different investment priorities, something that financial advisers need to keep in mind especially nearing the end of the 2018-19 tax year.
Millennial, middle-aged and retiree investors will look at investment solutions differently in terms of risk, returns and social responsibility.
A recent survey by the Association of Investment Companies (Aic), highlighted the need to target investors according to their age cohort, dividing them into there main categories: Millennials, middle-aged and retirees.
International Adviser reached out to financial adviser Tenet Group to see how investment offerings should be diversified between the three groups.
Millennials: high risk and long-term
“This generation perhaps faces greater financial pressures than previous generations in terms of both housing costs and student debt,” said Mike Dowsett, senior technical services and research consultant at Tenet.
With moving up the housing ladder and retirement-saving high on their priority list, millennials are more likely to get involved in investing at an “early stage of their lives”.
“With longer term investment horizons, this generation can arguably afford to take higher investment risk, especially with regular savings. Low cost and simple to understand products are likely to be attractive and fit their planning needs.
“This generation is just as likely to research options online and purchase direct to consumer products, as they are to seek face-to-face advice from an adviser,” Dowsett added.
However, while Aic’s survey showed a trend towards ESG offerings for this age cohort, Dowsett believes it may be more of a perception.
“While it is probably true that this generation as a whole is more environmentally aware than older generations, some studies have suggested that the take up of ESG themed investments is just as high among the older population.”
Middle-aged investors: balance and diversification
On the other hand, Aic found that the offerings for middle-aged investors tend to be more balanced and focused on real returns on the long-term.
“Effective portfolio management services and multi-asset funds providing a diversified portfolio consistent with their desired risk level will often be utilised,” Dowsett said.
“With higher wealth and higher disposable incomes, solutions that maximise the use of available tax allowances will be attractive. This group will need the reassurance that they are on track to meet their longer-term financial goals and an investment strategy that helps to demonstrate this.”
Retirees: income, income, income
Priorities for this cohort will most likely tend to be on the delivery of steady and reliable returns, according to Aic’s research.
Since the introduction of pension freedoms in the UK, now retirees can have more flexibility when choosing how to use and where to put their wealth.
Dowsett said: “For some, this wealth will be considerable as those with generous defined benefit pensions reach retirement age. With longer life expectancy than ever before, capital preservation and ensuring that they do not run out of money in retirement will be the biggest financial priority for many.
“In terms of income generation, a choice may need to be made between either products which provide a stable and targeted income yield or taking a capital withdrawal from products which manage volatility.
“Careful planning and good advice are crucial in dealing with finding an acceptable balance between life expectancy, desired level of income and affordable level of income.”
