How different generations invest their money

Baby boomers are busy with succession plans, Gen X is saving for retirement, millennials prefer DIY investments, while Gen Z believes in impact investing

Jerin Shaji, a Gen Zer, only wants to invest in companies or funds that promote social sustainability. He has invested in exchange-traded funds, stocks and a small amount in digital gold. Chris Whiteoak / The NationalShow less

From spending habits to investment and financial goals, the generational gap, it seems, will never fade away. Depending on the stage of life you are currently at, the economic environment in which you came of age and the major world events that shaped your outlook, the way you approach your finances will differ from other generations, according to experts.

Baby boomers, or those born between 1946 and 1964, are mostly retired or getting close to retirement, while Gen X-ers (born between 1965 and 1980) are in their prime earning years or nearing early retirement.

Globally, there are 1.8 billion millennials (born between 1981 and 1995), accounting for roughly a quarter of the world's population, according to the World Economic Forum. The oldest millennials are nearing 40, while the youngest members are still in college.

By 2030, millennials are expected to control as much as $20 trillion (Dh73.5tn) in assets globally, according to market intelligence platform CB Insights.

Millennials also tend to prefer the do-it-yourself route when it comes to investing their funds.

Meanwhile, Generation Z (born between 1996 and 2015) usually learn about investment on the internet or on YouTube. According to research from financial services company Morningstar, which surveyed 1,300 Gen Zers in the US, every respondent said they use at least one financial app, whether for budgeting, investing or everyday banking.

"Given their young age, millennials and Gen Z are comfortable taking on more risk. The new generations want convenience, transparency and personalisation just as much as performance", says Mark Chahwan, co-founder and chief executive of robo-advisory firm Sarwa.

He adds that given the younger generation's higher risk capacity, stocks are their favourite asset class. "It’s not just about returns, they also demand their adviser and their portfolio make a positive difference in the world," Mr Chahwan adds.

Meanwhile, Baby Boomers and Gen Xers are more conservative in their approach to risk. "They have learnt from the past that the best thing to do when the stock market crashes is to do nothing or rebalance the portfolio to take advantage of lower stock prices," he says.

We speak to a representative from each of the four generations for an insight into how they approach their finances.

Gen Z: Thinking about the future

Jerin Shaji, 25, is a UAE-based trader who is a big proponent of impact investing, For the past three years, the Gen Zer has been investing in companies or funds that promote sustainability.

“I want to invest in companies that abide by environmental, social and governance practices because such companies last longer though the returns may be slightly less,” says Mr Shaji.

“I have invested in exchange-traded funds that promote social sustainability as well as stocks in technology companies such as Apple, Microsoft, Tesla, etc. These funds offer conservative risk, but returns are sustainable.”

I want to invest in companies that abide by environmental, social and governance practices because such companies last longer

Mr Shaji started investing when he was 20 years old, when he secured a job with US-based stock exchange Nasdaq right after college. "It was mandatory to have a portfolio and I started investing in stocks," he tells The National.

The Gen Zer attributes his discipline in handling money to his father’s monthly budgeting exercises. Mr Shaji’s father, who was an accountant, gave his son access to both his and his wife’s bank accounts.

“When I was growing up, I was unaware of where money was being spent. These budgeting lessons helped shape my attitude to finance,” he says.

The Dubai-based trader from India recommends everyone should save 30 to 40 per cent of their earnings. “Save first, spend later," he says. "That habit will create personal financial discipline.”

Mr Shaji has invested in exchange-traded funds, stocks and a small amount in digital gold. Although he tried investing in physical gold, he did not make a big profit when selling it.

Mr Shaji is also keen to learn more about cryptocurrencies, saying all investors must consider this “fledgling industry because many experts claim this could be a future technology for currencies”.

He aims to be financially independent between the ages of 35 and 40. Because of his 15-year savings outlook, Mr Shaji does not adopt a high-risk approach to investment.

“I have a conservative to medium-risk appetite. I want to reinvest whatever returns I am earning through dividends back into stocks,” he adds.

Although he was initially mentored by a few financial experts, Mr Shaji claims he has learned about trading on YouTube and the internet. Now, he adopts a DIY approach to trading.

Julien Sanchz, a millennial, aims to be financially independent within five to seven years. Antonie Robertson / The National

Millennials: The DIY approach

Julien Sanchz, 39, had his first experience with the world of investing at the age of 20. In college, he allocated his savings to mutual funds. The Colombian later parked his money in a savings account.

Mr Sanchz, a regional customer manager with DHL, purchased a property in 2011 in Downtown Dubai. Meanwhile, he also signed up with an investment company to invest in a portfolio of mutual funds and was on the plan for three years.

“I cancelled it later when I realised I could do the same on my own. I have now invested in ETFs and manage it on my own. I have an 80:20 allocation towards equity and bonds,” says Mr Sanchz.

After reading books, attending a few lectures and doing his own analysis, he has decided to adopt a DIY approach to investment.

I want to reach financial independence sooner so work need not be a must in my life, rather an option only

Mr Sanchz says his upbringing helped shape his attitude to personal finance. “My parents were teachers and they were savers. When it was payday for them, they would withdraw all their money, put it on the table and allocate it for various expenses. That budget exercise is still vivid in my mind and made an impact on me,” he recalls.

Although most of his portfolio is in shares, he does not see himself as an aggressive risk-taker. Mr Sanchz says he wouldn’t put his money in Bitcoin and other emerging technologies because he “prefers to invest in something that is tangible and has a structure”.

Mr Sanchz aims to be financially independent within five to seven years.

"Money is not my ultimate goal. I have a comfortable lifestyle now and enjoy spending money on travel, food, restaurants and experiences. I want to reach financial independence sooner so work need not be a must in my life, rather an option only," he tells The National.

When the Covid-19-induced uncertainty wreaked havoc on global financial markets in March this year, this millennial remained unperturbed and did not tweak his portfolio. “Instead, I was waiting for payday to invest some more money in stocks. As soon as I was paid, I transferred money to those ETFs and they have increased in value,” he explains.

Rajesh Keerthy, a Gen Xer, has invested in real estate in India and South Africa, mutual funds and bonds. Vidhyaa Chandramohan for The National

Gen X: Keeping faith in property

Rajesh Keerthy, 48, invests for three reasons. The aviation industry professional from India wants to primarily to lead a comfortable life after retirement. He also wants to fund his son’s college education expenses. Lastly, he believes that keeping track of how the money market moves is a good exercise to keep his brain cells active.

“Investing is extremely important given the times we live in. More so with the current economic scenario and rampant job losses, having a second source of income is extremely important,” says Mr Keerthy.

He has invested in real estate in India and South Africa, and in mutual funds and bonds. Stressing the importance of taking out life insurance for the safety and security of family, Mr Keerthy says this not only creates a forced saving plan but also provides a safety net in case of critical illness or the demise of the family’s main breadwinner.

With the current economic scenario and rampant job losses, having a second source of income is extremely important

The Al Ain resident currently sets aside almost 50 per cent of his earnings for investment. “Though it leaves me very little to spend on luxuries, I have realised that if you have money in your account, you will always have the urge to splurge,” he adds.

Mr Keerthy, who started investing in the financial market just 10 years ago, says he has invested in retirement plans that offer decent returns after a fixed period. “Also, invest in a three-bedroom house back home. Once you retire, you can probably sell that house for a good price and buy yourself a smaller house, which will ensure you have some money left over in your bank,” Mr Keerthy says.

He was unfazed by the recent bout of market correction. “I am someone who likes to ride along with the waves and not worry about short-term disruptions.”

Although Mr Keerthy is a big fan of artificial intelligence (AI), he eschews it in terms of investing because “it takes away the fun of doing calculations and taking your own decisions”.

“At some point, you might be able to leave all your investment worries to AI, maybe in another five to six or even 10 years,” he says.

Mr Keerthy recommends the help of a financial consultant from a professional agency, a bank relationship manager or a friend who is a seasoned investor.

He adds that investors must also start studying the nuances of the financial market so that they can slowly start treading the waters by themselves.

Iftikhar aka Dr Yess says boomers must pay immediate attention to contingency planning as part of overall financial planning during these turbulent times. Reem Mohammed / The National

Baby boomers: Wealth preservation is key 

The top financial goal of Iftikhar, aka Dr Yess, a mentor and strategy consultant to family businesses, is to preserve his capital and pass on assets safely to the next generation.

The 61 year-old has diversified into all asset classes and has zero appetite for risk.

"I take risk only in business enterprises, not in investments. I don't believe in speculation," he tells The National.

Dr Yess, who started investing in his teens, ignored headlines during the recent bout of market volatility. “I stayed the course and did not make any changes to my portfolio,” he notes.

He advocates the need for baby boomers to have their succession planning in place. This includes having a power of attorney, will, nominee, joint account or trust to manage their wealth. All original documents must be deposited in a safe, accessible and fireproof place, he says, adding that boomers must also draft a letter to convey their instructions, wishes and passwords.

Dr Yess says boomers must also pay immediate attention to contingency planning as part of their overall financial planning in these uncertain times.

He also stresses the importance of taking out medical insurance for boomers. “Consider the cost and benefits of long-term care and critical illness insurance. Authorise someone to make/sign critical medical decisions required by healthcare providers for emergencies.”

Dr Yess recommends boomers to adopt a "3+3+3" formula for their wealth. “Have three months’ worth of expenses as cash under the mattress; three months’ worth of expenses as cash in the bank with auto-payment standing orders for liabilities such as utilities, rent, etc.; and three months’ worth of expenses as cash reserves in the bank. Interest rates on deposits are negligible, so it’s better to have ready access to cash,” he suggests.

He asserts that boomers must ensure their bank accounts are active by making small withdrawals or deposit transactions in order to avoid them being declared dormant.

For those boomers who are hunting for yield, Dr Yess suggests fractional investment in enterprises, start-ups or real estate to supplement their passive income.