Thursday, January 9, 2014

The Challenge With Young Investors, Part 2

by: Michael Castro, XBRL Production Manager
CompSci Resources, LLC

In part 1 of this blog post, I outlined a number of challenges I felt fund managers faced when targeting young investors. In this installation, I quickly take a look at some of the solutions to this problem.

1.   Instant Information—as I pointed out, with the instant nature of today’s technology, investors can access their portfolios virtually anywhere. This can cause quite a bit of “short-term investing” in mutual funds, so to speak. So what can be done to prevent such practices?  The answer isn’t perfect, but mobile and web apps need to be better designed to show not only the current returns on an investment product, but also to show the long-term returns. By showing how an investors’ money has grown since the fund’s purchase to the present, and even a hypothetical growth chart based on current trends on how the money may grow, may help young investors who live in the moment to realize the long-term benefits of letting their money sit. Getting this information into the hands of investors is another struggle, one that can be solved, I believe, with XBRL (part 3).

2.  Lack of Investible Income—while not ideal, fund managers can lower the minimum contribution amounts to attract those who can’t afford the larger minimums. This would not only provide more assets in the fund, it would also be a sort of marketing effect for the fund family. If an investor begins investing in, for example, a particular fund at a younger age, they may be more inclined to keep investing in that fund, especially if they feel they were treated well. Further, as their Baby Boomer parents begin to age, millennials will see the largest transfer of wealth in decades. Marketing to these young investors now should reap large rewards for fund managers.

3.  Search Marketing—the rise of Google and other search engines cannot be stopped. The solution to fund managers is the same that many other companies face: optimizing search results. Successful funds tend to be mentioned in blogs or investment guides. To a novice investor, a quick search of “Best ETFs 2013” will yield many blog posts and articles, and most likely the investor will choose one of the products that were listed. Managers need to be proactive, and ensure that their funds are listed in these articles, if by no other way writing about their products themselves.

4.  Investment Goals—unlike investing money for retirement over the course of 40 years, many young investors have savings goals that will come to fruition within 10 years. These are things like buying a car or saving for a down payment on a house. However, most young people do not see the benefit of using investment products to meet these goals, and instead keep their money in savings accounts. Low-risk mutual funds, however, are often the better choice and can make a lot of difference. The problem is that there are no products specifically designed for this type of goal as there are for retirement. If fund managers created certain target date funds that help an investor realize a more short-term goal, more young investors may be more willing to switch to these investment products over a traditional savings account.


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Click here for part 1 in this two-part series.

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