Why Tech-Savvy Millennial Investors Need Human Financial Advisers

Meet the new kids on the block shaping the investment landscape: the high-net-worth and affluent millennials. A lot has been said about the rise of millennial demographic. Born between 1980 and 2000, the millennial generation—also known as NextGen or Gen Y—is climbing up the ranks of adulthood and changing the culture of live, work, and play.

According to a White House economic report, one of the most defining traits of the millennials is how technology has shaped their lives. In turn, technology is shaping how millennials build wealth. So the writing is on the wall: while wealthy millennials are looking to invest, they are more likely to turn to technology and trusted peers for information, which is a great contrast to their wealthy parents, a generation who has gained wealth with the help of a financial adviser.
Getting to Know The New Kid on the Block

Companies have been trying to crack the code on marketing to millennials, and the next puzzle to put together is a picture of their investment behavior. High-net-worth individuals or HNWI are traditionally defined as those who have financial assets between $1 million and just under $5 million. Ultra-high net worth individuals are those with assets that are at least $5 million and up. Affluent investors are those who have financial assets between $100,000 up to $1 million.

Gen Y’ers tend to be conservative investors, a characteristic much like the Baby Boomer generation who grew up during the Great Depression and WWII. Likewise, young investors have been greatly shaped by the Great Recession, a period between 2007 and 2009 that was defined by mass layoffs, a down economy, and the burst of the housing bubble. Millennials are likely to be entrepreneurial, a trait that reflects Ken Fisher’s success story.

NextGen has long been making waves, and now those waves have crashed onto shore and reflect the new reality. While their investor predecessors were known for desiring an early retirement, millennials don’t mind working longer if it means they are able to get them closer to their lifestyle goals. They also want and careers that they enjoy or join a company that shares their values, a trait that reflects an entrepreneurial mindset. Work-life balance and flexibility are benefits that NextGen wants now, not when they are closer to retirement age.

Contrary to the selfish stereotype, millennials are community-minded. They are more likely to put their money toward causes they believe make an impact on the world.

 

A Different Breed of Investors

Young investors found a backdoor, so to speak, to entering the investment market. Financial firms have largely overlooked investment potential in NextGen because it was not economical to provide services to those with low account balances. In other words, why court a customer who is not ready for the services? However, technology provided the backdoor to the investment game: robo-advisers. These online firms offer portfolio advice that is automated and based on an algorithm, not a human financial adviser.  have low barriers to entry—some with $0 account minimums and low or free management fees—coupled with the millennial’s natural knack to wield technology seem like a match made in heaven.

That doesn’t mean that human financial advisers are out of the picture. More than a majority of high-net-worth millennials and nearly half of affluent millennials have a financial adviser. Firms are starting to pursue the potentially wealthy young individuals, and likewise, the potentially wealthy are looking for help to grow their value.

That’s why it’s important to understand this new crop of investors, especially when it comes to retirement savings and investing. Entering the job market in a down economy and high student debt have delayed or hindered millennials to save for retirement. Now they are coming of age, growing in their careers and raising their families, which presents opportunities for financial advisers.

 

Helping Gen Y’ers Find a Financial Adviser

The next crop of young investors is the first generation that has to almost entirely rely on their own wealth building for retirement, unlike the previous generation that more likely had the pensions from their employers and better Social Security benefits. However, financial advisers can help millennials utilize their greatest asset: time. Millennials, including the potentially wealthy, and financial advisers mutually benefit from this asset. Financial advisers have clients in the pipeline, and despite being late to the party, millennials get personalized guidance with aligning retirement plans with personal values and lifestyle goals.

Should You Invest in Collectibles?

Remember the Beanie Baby craze?

It started in the mid-1990s. Ty Inc., the company behind the phenomenon, deliberately limited production of each design. They’d restrict shipments to stores and retire older models and designs. As the toys got to be more popular, a secondary market emerged where people would buy and sell their favorite models.

After a while, this secondary market exploded. People looked at the value of the earliest designs and assumed every model would eventually be worth that much.

The internet helped too. At the height of popularity, people were buying the bears and flipping them on sites like eBay for huge profits. Profits were as high as 1,000%, and eBay reported at its peak Beanie Babies accounted for as much as 10% of its sales. There was even a magazine dedicated to the toys which ran for more than four years.

We all know how it ended. Beanie Babies that traded hands for hundreds of dollars in the late-1990s are barely worth $5 today.

Not just Beanie Babies

Beanie Babies aren’t the only collectable craze that ended up ending badly.

In the early-1990s, it seemed like every sports fan in Canada was collecting hockey cards. The value of cards from the 1950s and 1960s was through the roof. A Bobby Orr rookie card was worth upwards of $2,000. A Wayne Gretzky rookie card was worth $500. For the average kid collecting, that was a powerful incentive to keep your cards in good shape.

To keep up with the demand, card companies flooded the market with product, making sure that every kid who wanted the latest Mario Lemieux or Brett Hull card could have one. Some manufacturers even took it a step further, positioning themselves as the cheapest option for collectors. Since collectors thought every card was poised to be worth a lot of money someday, they bought up these cheap cards like crazy.

Twenty years later, most of those cards aren’t even worth the paper they’re printed on. A select few are worth something, while the others don’t have much use outside of kindling.

In hindsight, it all looks so obvious. Manufacturers react to demand by making more product. The market gets flooded with so much supply it ensures these new cards will never be worth anything. It’s basic economic theory at work.

Do it smart

I paint a pretty bleak picture when it comes to investing in collectables.

It’s difficult because you have to be good at predicting the future, something that eludes most of us. You have to pick something that has limited supply, that will become more popular as time goes on, and that has a market. You could buy the most rare item in the world, but it’ll never be worth anything unless somebody pays for it.

What you want to do is focus on items that definitely will not be made any longer that are somewhat rare. Toys are perhaps the best example of this. Toy manufacturers know a big part of their market is collectors, so they intentionally limit supply.

Your job as an investor in collectables is to figure out what toys will increase in value and which ones don’t have that potential. This involves a lot of close study of the popularity of the toy versus the overall demand of toys of that particular genre.

Take Star Wars. The toys made to accompany the first movie have value because over the years supply dwindled and demand skyrocketed.

It’s not simple enough to buy Star Wars toys today and hold onto them for 30 years. Lots of people do that. You have to figure out which movies will surge in popularity over the next 30 years and then buy the toys now, when they’re cheap.

Good luck with that.

And while you’re at it, watch out for a decline in the whole sector. A perfect example of this is athlete autographs. It used to be a fan would want an autograph as proof they met the athlete. These days it’s all about pictures. People want a picture with their favorite celeb. They don’t want to shell out hundreds of dollars for an autographed piece of equipment.

Just don’t bother

I have a friend who owns a hobby store. He constantly gives out this advice to people who are looking for the next collectable that’ll make them rich.

“Collect something because you like it. That way when it ends up worthless, you won’t be disappointed.”

That’s terrific advice. Since nobody can really predict what’ll be worth money and what won’t be, it’s best to buy collectables because you like them. Don’t treat them as an investment.