Issue #44: Managing Millennial Wealth
I saw a headline in the Wall Street Journal recently titled “Thanks for the Golf, but You Can’t Manage My Money”. The article was about wealthy millennials not seeing the value in hiring wealth management firms their parents use. Instead, they prefer to pick their own stocks or invest money in cryptocurrency.
For whatever reason, I like thinking about money management. Always have. And I can relate to the people in the article. At 34, my preference is to manage my own portfolio of investments too, and I wanted to understand why.
Am I a control freak? Am I arrogant enough to think I can generate better returns, consistently, on my own? Are my investment interests too “outside the box” for traditional advisors?
All of the above to an extent. I realized that in answering these questions for myself, I explored some interesting trends playing out in the market.
Let’s zoom in…
Access & Control
The Internet’s impact on investing is best described by one word - access. Access to more information. Access to more opportunities. Access to tools that help you make smarter decisions. We have more access to more things than we ever have before.
Financial markets aren’t behind a wall guarded by men in suites anymore. Today, there is a 24-hour news cycle, specialized newsletters covering every possible sector of the market, social media influencers breaking down complex topics, and more free information than anyone can consume on a daily basis. When it comes to investing, information is power. And it’s all at our fingertips.
In parallel, access to investment opportunities has increased. Fintechs have bitten off tiny pieces of the financial markets and served it up to 18-45 year olds in delightful online experiences.
Platforms like LendingClub, Peerstreet and FundersClub offer access to non-traditional investments that may be less correlated with the stock market. Similarly, Airbnb and Vrbo have not only reinvented travel accommodations, they’ve also created a new revenue stream for real estate owners. I can even buy fractional residential real estate in cities I don’t live in through RealT. Passive cash flow at 8-12% APY without the hassle of being a landlord? Yes please.
The combination of more information and more opportunities is empowering and gives individuals, particularly Internet-savvy millennials, more control over their money. And we’re used to being in the drivers seat. The online experience has conditioned us to expect control and personalization at every corner.
Once you give it to us, we aren’t inclined to give it back.
Innovation Outpacing Advice
For someone like me who works in tech and looks primarily at fringe investments like cryptocurrency and NFTs, I would LOVE to be able to lean on an advisor with better visibility over the Web3 and pre-IPO landscape. But the good ones are few and far between, if they exist at all.
Financial advisors primarily support the public markets - stocks, bonds, index and mutual funds, commodities. If I want something else, I need to find it myself, or be wealthy enough to warrant a higher level of professional service.
There is a gap between the investments supported by financial advisors and the investment opportunities available. The gap will widen as blockchains, tokens and Web3 mature. The number and variety of financial products and services that will be created over the next ten years will be nothing short of astounding.
This technology has already ushered in the “ownership economy” - the phrase used to describe the new paradigm of user-owned everything. Here are some examples of things you can own/invest in today:
Global financial infrastructure (blockchains and DeFi protocols)
Decentralized web services (cloud storage and identity management)
Decentralized media services (audio streaming, video streaming)
Metaverse/In-game resources (virtual land, characters and goods)
DAOs (Internet-native communities)
Digital content via NFTs (images, videos, songs, memes, tweets)
In the not so distant future, you’ll be able to buy a piece of a specific neighborhood or city block in New York City, and invest in a person’s future earnings. Anything that can be tokenized, will be, and you can own it.
This highlighted another trend…
Another angle to consider here is how young adults are engaging with information and investments. They are digital-first, text-first, app-first. They buy stocks on Robinhood, cryptocurrency on Coinbase, and going into a bank feels like going back in time.
So as you would expect, when they seek advice they do it through digitally-native means. Forums, Facebook groups, Youtube channels, podcasts.
My girlfriend religiously watches Coin Bureau, a Youtube channel dedicated to cryptocurrency. The content is educational and the host - Guy - is a charismatic Brit with the perfect balance of humor and substance. For my girlfriend, Guy is a filter - someone who sifts through everything happening in the market and presenting viewers with an unbiased take on the most important topics. His 1.6M subscribers rely on him to discover and learn about new opportunities.
I did the same thing when I wanted advice on real estate investing. I listened to a few podcasts from people that had done it before.
We’re about to take another leap forward…
Social media and investing are on a collision course. What started as a way to educate/inform has become a way to coordinate mass liquidity flows.
You saw it play out in the stock market, and you saw it play out recently in crypto. Over several days, massive amounts of retail money poured into meme stocks like Tesla, Gamestop, AMC, and meme coins like Dogecoin and Shiba Inu. Prices pumped initially, but inevitably came back down as the influx of new money slowed.
Investing is going viral too, though this is really gambling.
The next frontier is social trading. Influencers won’t just share information, they will share their portfolios, and the best performing investors will attract the largest audiences.
Now, I’m in favor of more access and transparency, as long as the experience is rooted in helping people make the most informed financial decisions, not driving engagement and trading fees. Investing is hyper personal and everyone’s circumstances are different. Different income and savings levels. Different risk tolerance. Different goals. Doing it well also requires conviction and patience. These values fly in the face of the immediate feedback loops and inevitable “comparison-bias” of social media.
The responsibility of anyone building social trading tools is to design a personal experience that educates and helps users make smart decisions. My fear is the engagement dynamics of social media will be adopted for social trading, and users will want the same dopamine hit they get from Instagram and Twitter during the investing experience. That’s a recipe for disaster.
Access to more information and tools. Access to more opportunities. Digital-native engagement models. I would expect there to be a spike in financial literacy.
Financial literacy is defined as an awareness and knowledge of key financial concepts required for managing personal finances. Concepts include the basics of mortgages, interest rates, inflation and compound interest.
According to a 2020 Milken Institute study on financial literacy in the United States, only 52% of adults were financially literate. That’s a slight improvement from 49% in 2017, but still embarrassingly low. The US ranks #14 behind the usual suspects - Norway, Denmark, Sweden, Israel, Canada, Germany, etc.
One culprit is our education system. Only 21 states require high school students to take a course about personal finance, and only 25 require them to take an economics course.
This needs to change.
Thanks for reading,
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