Fewer young people say they are investing in the market compared to a year ago

The S&P 500 has recently made up for half of its decline from its early January high, and some fund managers are sounding less pessimistic about the toll that inflation and rising interest rates have taken on the market.

But if the comeback has legs, a new survey shows that many younger investors and those on smaller incomes will be watching the recovery from the sidelines — mainly due to the rise in the cost of living over the past 12 months.

Fewer people say they are investing in the market compared to a year ago, driven by more cautious and risk-averse Millennials and Generation Z households, according to research from Morning Consult released Tuesday.

About half (49%) of Generation Z adults ages 18 to 25 said they had at least one investment product in July 2022, down from nearly 60% over the same time last year. For millennials ages 26 to 41, that share shrank from 70% last year to 57%.

Meanwhile, Generation X, ages 42 to 57, rose by at least one investment product from 56% to 60%. In the 58- to 76-year-old baby boomer demographic, two-thirds said they had made at least one investment, up from 61% a year ago.

On Tuesday, the Dow Jones Industrial Average recorded DJIA,
+0.61%
and the S&P 500 SPX,
+0.04%
were slightly higher, while the Nasdaq Composite COMP,
-0.42%
was treading water. Last week, the Nasdaq exited bear market territory, down at least 20% from a recent high.

The pool of investors is at risk of becoming “increasingly homogeneous” — or older and wealthier — said Charlotte Principato, a financial services analyst at Morning Consult. “There are signs that this shift is already happening,” she added.

With rents and childcare prices continuing to rise at scorching speeds, the data could provide a strong indication that many younger people can only put away so much for their long-term investments.

More than a third of individual investors had annual incomes of up to $50,000. Last year, according to Morning Consult data, a higher proportion of individual investors – 4 in 10 – had annual incomes below the $50,000 threshold.

Across all demographics, the proportion of people using investment accounts, managed investment accounts and robo-advisors also declined from July 2021 to June 2022, according to the survey of 6,600 people this year and last year.

That is not to say that there is a general cooling in the stock market. According to a recent Bankrate.com survey, a quarter of people said the stock market is the best place to stash money they won’t need for a decade.

But as rents and childcare prices continue to rise at blistering speeds, the data could provide a strong indication that many younger people can only put so much away for their long-term investments.

July’s consumer price index — up 8.5% year-on-year — was cooler than previous months, yet about half (53%) of people said they had extra cash at the end of the month in June had, compared to 61% a year ago, the Morning Consult data showed.

Middle-income households and young people have been particularly affected by rising rents. Rents grew by an average of 7.3% year-on-year over three months, the fastest increase since 1990.

According to the Bank of America’s BAC survey, middle-income and younger households suffer the most from rising rents. Rents saw a quarterly average increase of 7.3% year-over-year – the fastest clip since 1990.

While house prices are showing signs of weakening, they are out of reach for many people. Childcare costs are another barrier to families who are expected to return to work in person as the worst days of the COVID-19 pandemic appear to be behind us.

In the second quarter, Robinhood reported that its monthly active users decreased by 1.9 million to 14 million from the previous quarter. That is “primarily driven by lower valuations of market assets,” the company noted in its quarterly results.

Robinhood users are battling high inflation, high interest rates and difficult environments for stocks and cryptocurrency, said Vladimir Tenev, CEO and co-founder of Robinhood, in a second-quarter earnings call.

“And all of this adds up to less money to spend and therefore less to save and invest,” he said, according to a transcript of the Aug. 4 call provided by FactSet, which was released the same day it said that it planned to cut staff by 23%.

But Tenev sounded optimistic later in the conversation, adding that he believed that many of these younger clients who are still at the beginning of their investment journey “will do quite well in the end.”

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