Younger Australians invest for the long haul

Although home ownership is out of reach for many young people, that hasn’t stopped them investing in other areas.

Generally speaking, most Australians want to grow their wealth.

We all have different reasons for doing so.

For some, it might be to retire early and spend more time with their family. For others, it will be to leave a legacy for the generation that follows them.

Throughout my career, I have watched multiple generations of Australians grapple with building wealth. Each of them has faced their own challenges in pursuit of their ambitions.

Over the past 50 years, wealth building for most Australians started and ended with the family home.

A savings account and mortgage were the tools most frequently used to help Australians move up the ladder.

In the 1990s, rapid growth led to a period of high interest rates, curbing access to mortgages. That was before the Asian financial crisis sent a shockwave through markets.

A period of relative stability was soon brought to a halt by the Global Financial Crisis in 2008, unravelling the best-laid plans of many.

Which brings me to the results of our HSBC Investor Insights research survey.

For the past three years, we have surveyed Australian investors to uncover their attitudes towards wealth building.

Perhaps most significantly, the 2024 edition sheds light on how the next generation of Australians is forging their own path, differing significantly from the methods employed by the generations who preceded them.

As the next generation of Australians face the task of building wealth, they are faced with a new set of challenges, and thus a new set of tools.

Housing in Australia’s capital cities continues to be in high demand, making it difficult for first-home buyers. Meanwhile, uncertainty continues to seep into global markets, scaring some investors away from opportunities for growth.

It would be hard, then, to blame younger Australians for feeling discouraged from their wealth journey and instead choosing to prioritise other life ambitions, such as travel.

But that’s not what they’re doing.

Despite the challenges, our research shows younger Australians have made a clear choice to continue their wealth-building journey, using the tools and resources that best fit their circumstances.

In lieu of accessing the housing market at the same age as their parents’ generation, many young Australians are choosing to invest in other – sometimes riskier – asset classes, using digital wealth platforms, often accessed solely through their mobile phone.

With time – and compulsory superannuation – on their side, Gen Z and millennial Australians are unencumbered by the need to preserve capital in low-risk asset classes to fund a retirement which is still decades away.

As a result, they have the flexibility to invest excess savings in diverse assets, able to absorb any potential losses over the short term to expose their portfolio to the growth opportunities on offer over the long term.

It’s an advantage they are putting to good use.

Our research found that in 2024, younger Australians are investing in equities and exchange-traded funds more often than older Australians.

They are also investing more often, employing a strategy known as ‘‘dollar-cost averaging’’ to lower their average cost per share.

Gen Z and millennial Australians report making investments on a monthly or weekly basis, while Gen X and baby boomers prefer to invest only a few times a year.

Additionally, younger Australians invest a greater portion of their monthly earnings than either baby boomers or Gen X investors. Our survey found Gen Z and millennial Australians direct up to 23 per cent of their monthly earnings to investments.

The optimism driving these behaviours stands in stark contrast to the general trend among the broader investor cohort.

Almost half of all investors report being unlikely or unsure about whether to diversify their portfolio in the short term. Meanwhile, the proportion of investors not investing regularly has also increased since 2023, consistent with the uncertain global economic outlook.

When taken together, these findings show younger Australians are making sound financial decisions for the long-term, consistent with an ambition to build wealth.

Every generation has its challenges, and it’s true that what worked for one generation is not guaranteed to work for the next.

Two wealth-building strategies have proven themselves time and again. Time in the market – rather than timing the market – and diversification.

They are the golden rules of investing.

Based on our research, it would appear younger Australians have an acute appreciation for the former. Their penchant for riskier assets could do with some adjustment, with more diversified portfolios likely to help protect them from sudden market shocks.

With time and experience, most investors find the right balance.

Wealth generation is an important part of financial wellbeing, and it’s clear that young Australians are taking a different path to the one taken by the generations which precede them.

Jessica Power is the head of international wealth and premier banking at HSBC Australia.