Millennials are the most bullish group when it comes to future returns, according to a recent study by Equiniti, with baby boomers and generation X far more cautious.
In a survey of 2,000 investors, those aged between 25 and 40 said they expected to make an average annual return of 8.1% over the next 10 years.
Generation Z – those aged 18-24 – were slightly less optimistic, but not by much. On average, the youngest cohort of investors expected to make 8.06% per year, although almost a third said they would manage to consistently achieve double-digit returns over a 10-year period.
Baby Boomers (aged 57-75) expected to make 7.27% per year over the coming decade, while Generation Z (aged 41-56) expected the lowest returns at 7.15%.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, said that all of these expectations are above the long-run historic market average, suggesting that investors have been lulled by the rapid recovery following the Covid-19 downturn in 2020.
“I do think that the last downturn gave investors a false sense of security as to what volatility looks like. Newer investors that had not invested prior to 2019 may believe that a period of underperformance is followed by one outperformance,” she said.
“Following the market fall in March we saw returns of more than 100% in less than a year and some of the largest US stocks were put on valuations of more than a number of countries.”
Younger investors were more confident in their own stock picking ability, as well as their knowledge of markets. In all, 31% of 18–40-year-olds described themselves as ‘a fully confident and informed shareholder’, compared with just 16% of 57–75-year-olds.
Older investors meanwhile were more than twice as likely to define themselves as lacking confidence, with 35% of 41–75-year-olds saying that they understand very little about their portfolio and do not feel they are making informed decisions.
Thera Prins, chief executive of UK shareholder services at EQ, said: “Younger investors have time on their side, so riskier stocks which have the potential for higher returns may well be what they’re betting on to deliver these returns, when markets have been especially volatile this year.”
It has never been easier to access markets and the rise in interest from the younger generation may convince older savers to invest.
However, Wall said that older investors, particularly those that fall into the baby boomer and gen X camp, should not be invested with as much risk as their younger contemporaries.
“They will be near or in retirement and therefore should place much more emphasis on capital preservation,” she said, suggesting that the returns expectations above were far too high for such portfolios.
“For younger investors, taking an aggressive approach is the right one but they should be risk aware and remember that 5% per year is an extremely good outcome.”
Elsewhere, the survey found that younger investors are also more likely to vote in annual general meetings (AGMs), with the share price the most influential thing when making shareholder voting decisions.
Environmental concerns were second with labour standards, the financial success of the firm and governance, such as board make-up, also making the list.
When it comes to what to buy, predicted returns remains the fundamental driver behind investor decisions, trumping environmental, social and governance (ESG) factors.
However, there was a generational difference in attitudes in this regard, with 18% of 18–24-year-olds saying ESG was their top concern, versus 11% of 57–75-year-olds.
Prins noted: “We’ve heard a lot about the rise of retail activism following the pandemic, but looking at the data, this behaviour could well be here to stay.
“Younger shareholders are voting more often to hold boards to account, which is good news for the industry as a whole. The challenge now will be addressing the final 19% who never vote at AGMs and changing the minds of the 34% who say they don’t do so because they don’t believe their vote will make a difference.”