“Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.”
As we go boldly into the many unknowns 2022 will present, we see George Orwell’s classic words play out in many aspects of our lives, but perhaps none more starkly than personal investing.
Boomers, by far the wealthiest generation in US history, have largely followed the “tried and true” investing principles that Buffett-esque oracles consistently preach. They have enacted decades of steady and disciplined saving, embraced diversified investing governed by dutiful risk management, and traded based on steadfast belief in fundamental analysis and market efficiency. Their slow and steady accumulation habits have been influenced by risk-averse, Depression-era parents while their appetite for luxury and living the life they worked to enjoy flew in the face of generational warnings for the need to sacrifice by living well below their means.
Meanwhile Millennials, and Generation Z coming up behind them, are writing an entirely new playbook. One that, like the new guy at the Texas hold’em table, doesn’t understand (let alone respect) convention… and seems to be winning despite the frustration more seasoned players have with their lack of regard for well-established poker etiquette.
The newest generation of investors have watched leverage pay off, groupthink supersede fundamentals, and concentrated investment in names like Apple, Tesla, Amazon and Google consistently outperform diversified portfolios throughout much, if not all, of their adult lifetimes. They’ve watched friends who have dabbled in cryptocurrencies create nearly instantaneous wealth that often eclipses decades of more traditional savings methods. And with continued, and nearly universal, market performance for going on 14 years now, they’ve all but ripped up prior teachings that bear markets come every ~3.5 years and last an average of 9 months and, as a result, seem to dismiss the value of caution and taking only measured risks.
As tenured advisors look to expand their client base by developing relationships with the next generations of investors, success likely means having different kinds of conversations: ones that not only seek to temper risk and protect younger investors from the types of downside many have not yet experienced, but ones that also acknowledge the place for and benefits of asymmetric risk. To establish rapport, advisors may need to also openly acknowledge and embrace the obvious: that in a world obsessed with social media and influenced as much by Reddit as fundamentals, markets are no longer driven purely by fundamentals and efficiency. They need to prove that there is still a place for and upside to financial planning.
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