Cleo is a 17-year-old student investor from Auckland, who has put around $1750 into a Sharesies portfolio since she began investing in shares at the beginning of 2021. Encouraged by her parents she’s made regular contributions, using money from her allowance and part-time job.
Her portfolio is now worth around $1500. Yup, that’s a return of minus 15 percent.
When stocks first began to fall earlier this year – the NZX50 index dropped 20 percent between January and June, mirroring double digit falls in the US and elsewhere – Cleo sold some of her shares “out of fear”, she says.
Then as some rose in value again, recovering their losses, she regretted her decision and hasn’t sold any since.
Still, it’s put a dampener on her enthusiasm.
“In the future, I might act a little more cautiously when investing in the stock market, knowing that at any moment, the value of my shares could drastically fall. Still I don’t think it has deterred me from investing completely.”
S&P / NZX50
Cleo may not be the only young share market newbie investor thinking a bit more about their portfolio since the downturn.
Research from Sharesies, the biggest low-fees online share investment platform in the New Zealand market, with more than 500,000 people signed-up, suggests young investors (aged 18-25) are investing smaller amounts and are more conservative in what they buy.
More than a fifth (21.3 percent) of Sharesies investors are under the age of 25 (excluding kids’ accounts). That’s double the number in this demographic just three years ago (10.1 percent in July 2019).
Still, the about-turn in the downturn hasn’t been as severe as might have been expected, Sharesies says, with habitual young investors continuing to invest regularly.
Similar story with other platforms. Joshua, a 20-year-old part-time worker from Wellington, first started investing about eight months ago and buys through Hatch, a NZ-based low-fees platform specialising in the US market.
Joshua has put a total of $600 into his portfolio and has seen its value fall to about $450. But he says he is continuing to contribute regularly, and intends to keep doing so as long as he has the means.
“I feel optimistic about my investments and the future, as I am only taking risks I know I can handle. The fall in the value of my portfolio hasn’t turned me off investing, but there have been moments where I have felt a bit wary about some of my investments.”
Not a mirror of 1987
Investment author and columnist Mary Holm says the present correction is different from the 1987 downturn following the Black Monday (October 19) Wall Street crash.
At its worst, the New Zealand sharemarket fell 15 percent in one day. And while other stock markets recovered, New Zealand’s didn’t. Between the pre-crash peak in 1987 and the end of February 1988, and almost 60 percent by the end of February 1988, according to a retrospective look at the market by New Zealand Herald business reporter Liam Dann.
“In fact, on a capital index basis — without factoring in dividends — the local stock exchange has never topped its 1987 peak,” Dann wrote in 2017.
“The economy went into recession in 1988 and, perhaps most damaging of all, a generation of investors — the baby boomers — turned away from capital markets and put their savings into property and property-focused finance companies.”
Mary Holm doesn’t reckon the same thing will happen this time.
“I don’t think this fall in share prices will scare young people away from investing in the future like it did for older New Zealanders after the 1987 crash.”
The big difference, she says, is that in the 1980s, New Zealanders were “putting in money that they couldn’t afford to lose, so after the crash, they were in big financial trouble.”
In fact, Holm reckons a dose of reality about stock markets isn’t a disaster for present-day young investors, even if they do end up panicking and selling their shares.
“It’s not such a bad thing for them to learn these lessons while they’re young. If they see the shares going back up again, they’ve learned an important lesson and they’re young enough to recover from that.”
She believes investing in the stock market is a good thing for young people “as long as they don’t get too carried away.
“You don’t want to be investing money you plan to use for university fees, so that if the investment goes bad it really impacts your future. If you’re just investing fairly small amounts that you can afford to lose, then I think it’s a good thing.
“They’re learning about the markets and that’s good.”
The risk of ‘free money’
But did young investors get enough warning about the potential risks of investing in the stock market?
Articles on sites like Sharesies tend to stress the upsides of investing, though all come with a legal disclaimer about risk on the bottom.
Take a guest article from “Ruth, the personal finance writer behind “The Happy Saver”. In a post on the Sharesies site, Ruth shares her tips for getting kids – from toddlers to teens – more engaged with investing.
It starts with: “Log into Sharesies with your baby on your knee … and chat about what you’re doing while you do it”, moving through childhood to using a teenager’s Sharesies account “as a teaching tool to show them what long-term investing looks like”.
Commentary is upbeat. “When my daughter sees a positive return (or ‘free money’ as she calls it) she equates it back to how many weeks she doesn’t have to work for pocket money!” Ruth says.
Cleo, the Sharesies investor from the start of this article, says she feels she was unprepared for the downturn in prices.
“While I was warned about the risks involved with investing, I feel that it maybe wasn’t emphasised as much as it could be. When it comes to younger investors like me, we tend to brush aside warnings like that unless they are stressed quite harshly.”
The gamification of investment
Ashley Gardyne, chief investment officer of investment manager Fisher Funds, has concerns about retail investment platforms.
“The thing I worry about a little with some of these new online platforms is that it’s very easy and tends to encourage people to invest in some more speculative things or to try and make money quickly.”
Some platforms could “do more work on the education front,” he says. “For example, [US-based commissions-free platform] Robinhood almost encourages the gamification of investing by making it exciting to buy a share.
“While it’s obviously in their interest to get people trading more so they can make more money, I also think they should have a responsibility to try and educate investors.”
Not surprisingly given his role, Gardyne believes the human interaction offered by traditional broking firms and fund managers provides something lacking in online platforms.
“They have advisors that you can talk to before you put a trade on. They will be able to talk to you about the company or fund you are looking at and ask why you are considering it. There’s an education process to that.
“But often with these apps, there’s not real person to talk to, and often there’s no advice or education along the way.”
Sharesies co-founder Leighton Roberts says the company “places a lot of effort into educating and powering our investors” around risk. This includes a risk indicator (scale 1-7) for each investment, articles on the Sharesies blog and a Share Club Facebook community, Roberts says.
“Investing is a long-term play and when market dips occur we remind investors about sticking to their strategy and that markets will rebound in time. We also emphasize the need to have a diversified portfolio across different instruments, and jurisdictions.”