Barry Schwartz spent most of March trying to talk his clients off of two distinct ledges.
A typical hour might have seen the chief investment officer at Baskin Wealth Management try to convince an emotional retiree to not panic and cash out, before having to pivot and temper the bet-it-all instincts of a millennial client with $50,000 burning a hole in their pocket.
While the former was not unexpected for the wealth management veteran, the latter was something new. And it wasn’t just one or two millennials under his care wanting to buy the dip after stocks plunged 30 per cent — it was all of them. The millennial generation may have a lousy reputation as investors, but they’ve played this stock market swoon better than their baby boomer rivals, Schwartz admits.
Certainly I learned a lesson that (millennials) had the foresight and the patience and a longer-term lens than we gave them credit for
Barry Schwartz, chief investment officer at Baskin Wealth Management
“There was a knock on millennials that they weren’t the brightest investors,” Schwartz said. “Certainly I learned a lesson that they had the foresight and the patience and a longer-term lens than we gave them credit for.”
Depending on who you ask, millennials are either foolhardy investors who have tried and ultimately failed by chasing get-rich-quick assets such as cryptocurrency and cannabis stocks — or they’re too conservative to even enter the stock market. The Bay Street pros anecdotally tend to lean to the former, but research suggests the latter is more accurate.
A 2017 Ontario Securities Commission study, for example, found that 53 per cent of millennials had no investments at all and that 57 per cent of that group chose to stay away from markets because they were concerned about losing money. Millennials, according to the study, appeared to be prioritizing savings. Eighty per cent reported having them and 73 per cent said they set money aside from every paycheque.
Now, it appears they’re finally cashing in.
Multiple Bay Street money managers told the Financial Post that their millennial clients have added so much cash to their accounts in the past weeks that it suggests they were sitting on an abundance of savings. Many are also increasing weekly or monthly contributions that are taken directly from their pay.
“What surprises me the most is that they actually have savings,” said Goodreid Investment Counsel portfolio manager Anthony Mazza. “They sometimes look like people who spend everything they make. They’re not as financially stressed as I thought they would be.”
The OSC report suggests most were saving for a downpayment on real estate — a task that might take some of them decades to accomplish. Of course, if they bought the dip in mid-March when North American markets reached their lows, they might have already eliminated a few years of saving from that horizon.
Richardson GMP portfolio manager Chris Kerlow said his millennial clients looked at the stock market as a way to boost their down-payment funds in a short amount of time.
“They’re thinking that they might as well strike while the iron is hot on the equities market here,” Kerlow said.
Like Schwartz, Kerlow said his millennial clients are aggressively buying the dip whereas those who are closer to retirement are being much more skittish. The difference may come down to the false confidence of not having invested in a downturn before, he said.
Millennials were still attempting to enter the workforce for the first time during the financial crisis in 2008. Not enough of them held a solid enough job to have built up investments, meaning they did not have to watch their savings vanish, as boomers did.
It’s clear to Kerlow based on the stocks they’ve voiced an interest in that millennials are interested in hyper-growth. He’s fielded calls on millennial darlings such as Tesla Inc. and stocks that have been badly beaten down such as cruiselines and airlines. Names that grew in popularity during the downturn like Zoom Video Communications Inc. and Clorox Co. have also captured their attention, he said.
But for asset managers like Richardson GMP, millennials are the clear minority among their clientele, Kerlow said, because of a focus on high net worth clients. And so Kerlow, a millennial himself, warned that the patterns he’s noticed may not accurately represent the broader group.
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Discount online brokerages such as Wealthsimple appeal more to the generation because they generally do not require users to place a minimum amount of funds in their accounts before they start trading. Wealthsimple chief investment officer Ben Reeves said the majority of users on the platform are under 34 years old and that shows in the most popular stocks traded in March: Tesla, Air Canada, Apple Inc., Aurora Cannabis Inc. and Toronto-Dominion Bank.
Reeves said that Wealthsimple Trade accounts, where users can invest in individual stocks, saw a massive spike in activity as trade orders increased by 43 per cent.
Wealthsimple Invest accounts, which invest for the long-term in a series of index-based ETFs based on users’ risk exposure, have seen few alterations in terms of redemptions, suggesting to Reeves that millennials are still focused on future returns.
“Millennials are doing a great job,” Reeves said. “I think for the millennials we interact with, that reputation (as lousy investors) wouldn’t be fair at all. We’re seeing really good long-term investors and we’re seeing those that want to speculate do so in a by-and-large prudent way.”
Even more noteworthy is that Wealthsimple’s total number of clients increased by 54 per cent in March. In April, it has seen 7,000 new users per week. According to Reeves, 55 per cent of those new clients are under 34 years old.
Robo-advisory firms such as Justwealth also appeal in mass to younger investors with modest investment funds. Andrew Kirkland, Justwealth’s president, said the generation makes up about a third of his clientele. A bulk of the new clients signing up now fall in the 24 to 35 age group.
Throughout the downturn, Justwealth actually increased its assets under management and Kirkland attributes that to millennials who have been adding thousands of dollars to the pre-existing accounts they had with the firm.
From what Kirkland can tell, many of his clients were already sitting on substantial lumps of cash. He’s seen new contributions range between $5,000 and $25,000 — the latter representing a quarter of what his average client has invested.
But what’s impressed Kirkland most is how millennials have been willing to listen to his portfolio managers and not allow the downturn to divert them from their financial plan.
“We found millennials were the most willing to stay on plan in this downturn and that can’t be said for other demographics in our client base,” said Kirkland.
The markets have already rewarded millennials for buying the dip. From the market bottom on March 23, both the Dow Jones Industrial Average and the S&P/TSX Composite Index are up more than 20 per cent. A $50,000 down-payment fund could now have an additional $10,000 in it. So far, so good.
There are some cautionary signs though. Kerlow said some millennials are so focused on growth that not all of them are doing their due diligence by studying a company’s balance sheet or credit rating. Schwartz said one of his millennial clients inquired about investing on margin — something he’s not comfortable with.
If they stick with a portfolio made up of market leaders, their investments in March will look even better in a year or two, Schwartz said. The boomers who sold near the bottom of the market, meanwhile, will be ruing their near-sightedness.
“Every time people bought the dip, it’s been the right move,” Schwartz said. “The same lesson is going to be learned again.”