Younger investors are twice as likely as their parents’ generation to have increased their allocation to cash assets such as savings accounts in the last six months, according to data from the latest Retail Investor Beat (RIB) from trading and investment platform eToro.
In the study of 10,000 retail investors across 13 countries, 65% of investors aged 18-34 said they upped their cash allocation in the second half of 2023 versus just 32% of over 55s. Similar percentages are seen for the Romanian investors. The trend, which flies in the face of the traditional view of older investors favouring liquidity as they near retirement, can be explained by the reasons offered by investors.
When investors were asked about the main motivations for putting more funds in cash assets, ‘having easy access’ was the most cited reason across the younger age group (21%), an answer that fell to third place amongst over-55s, whose most common reasons were guaranteed strong returns (23%) and their willingness to de-risk (23%). A higher proportion of 18-34 year olds versus over-55s (13% vs 9%) also said that they are prioritising cash over investments in the current climate.
For some of the young Romanian investors (21%), increasing their cash holdings seems to be easier than investing in other assets as they do not have to monitor it, while 17% cited the fear of volatility or poor performance in the markets, with de-risking or the need for easier access to money cited by 16% of respondents under the age of 35. Meanwhile, older Romanin investors (over 55 years of age) are accumulating cash due to de-risking (28%) or because the high interest rates are generating guaranteed strong returns (24%).
Commenting on the data, eToro Global Markets Strategist Ben Laidler, said: “Traditionally, younger investors have adopted a higher risk investment strategy as they have decades on their side to ride out volatility and compound returns, whilst older investors have typically de-risked as they neared retirement.
“However, soaring mortgage costs, rent and bills, which have a greater impact on the younger generation, have helped to flip the typical risk demographics on their head. The youngest cohort of investors clearly feel they need easy access to their money as they continue to weather higher living costs.”
As part of the study, investors were also asked how they are using or plan to use their cash. Just under a third (29%) of the younger group of investors said it would cover higher household costs such as energy bills and food, compared to 25% of older investors. More tellingly, 17% of 18-34 year olds referenced higher mortgage or rental payments, with just 6% of over-55s saying the same. Meanwhile a significant number of younger investors (19%) said they needed to hold more cash as they are trying to buy a home.
Romanian investors are somewhat different. Most young (40%) but also old (48%) took advantage of the high interest rates while 37% of the young and 44% of the old are preparing to reinvest. As the uncertainty is increasing the next important step is to have an emergency fund. For this purpose are saving 26% of the young and 32% of the old. Increasing costs of the household are making 26% of the young and 24% of the old, use their cash. Interestingly, the largest percentage of investors that are in the process of buying a house are the ones over 55 years old and the ones between 35 and 44 years old (16%), followed by the below 35 years (14%) and 45 to 54 years old (11%). This might be the result of the Romanian government decision to increase VAT on real estate transactions at the beginning of 2024 which made a lot of people rush to buy properties at the lower VAT.
Bogdan Maioreanu, market analysts said: “Romanian investors are taking advantage of high interest rates and are planning for an uncertain future. They are also preparing for opportunities that may arise in the markets. Many investors have maintained high allocations to tech stocks and crypto assets that have been the best performers of 2023. The big question for 2024 is if younger investors will increase their stock market exposure as inflation falls further and central banks slash interest rates.”
Questions around cash allocation were asked only to those investors who hold cash assets in their portfolio (67%), with this being the most held asset class globally, followed by domestic stocks (51%), domestic bonds and foreign stocks (both 34%). Almost 69% of the Romanian investors are having cash in their portfolios followed by currencies (58%), crypto (51%), domestic stocks (45%), foreign equities (37%) and domestic bonds (36%).
