- 54 per cent of young investors increased cash allocation in the last six months vs just 28 per cent of over 55s
- ‘Strong returns’ main reason for young investors upping cash allocation
- 18-34 year olds twice as likely as over-55s to focus on cash due to rising mortgage costs (19 per cent vs 6 per cent)
Thursday, 11 January 2024: Younger Aussie investors are twice as likely as their parents’ generation to have increased their allocation to cash assets such as savings accounts in the last six months, according to data from the latest Retail Investor Beat (RIB) from trading and investment platform eToro.
In the study of 1,000 retail investors across Australia, 54 per cent of investors aged 18-34 said they upped their cash allocation in the second half of 2023 versus just 28 per cent of over 55s. The trend, which flies in the face of the traditional view of older investors favouring liquidity as they near retirement, can be explained by the reasons offered by investors.
When Aussie investors were asked about the main motivations for putting more funds in cash assets, ‘strong returns are guaranteed because of high-interest rates’ was the most cited reason across both the younger age group (29 per cent) and over-55s (30 per cent). ‘Ease of access’ was the second-most common motivation among both young and older investors, with 24 per cent and 18 per cent, respectively, citing this as a reason for putting more funds in cash assets.
A higher proportion of 18-34-year-olds versus over-55s (16 per cent vs 3 per cent) also said that they increased their cash allocation as it was easier than investing, since they do not have to keep monitoring.
Commenting on the data, eToro Market Analyst Josh Gilbert, said: “With the cost of living crisis having a greater impact on the younger generation in 2023, we’ve seen a dash for cash in the last 6 months of the year. Soaring mortgage costs, rent and bills have caused investors to put investing on the back burner. Investors see a need for easy access to their money as they continue to weather higher living costs, whilst still getting some of the best returns on cash that we’ve seen for over a decade.”
“Traditionally, younger investors have tended to adopt a higher-risk strategy, with time on their side providing the ability to ride out volatility and benefit from compounding returns. Consumer confidence reached record lows in Australia through 2023 so it’s no surprise to see Aussies, especially the younger generation, building up their cash reserves.”
As part of the study, Aussie investors were also asked how they are using or plan to use their cash. Just under half (42 per cent) of the younger group of investors said they were building it up, ready to reinvest, compared to 32 per cent of older investors. More tellingly, 19 per cent of 18-34-year-olds referenced higher mortgage or rental payments, with just 6 per cent of over-55s saying the same. Meanwhile a significant number of younger investors (16 per cent) said they needed to hold more cash as they are trying to buy a home.
Gilbert adds: “What is interesting and good to see is those that have turned to cash are most likely to reinvest when the time is right. With 2024 set to see inflation fall further and central banks cutting interest rates, younger investors may feel more confident increasing their investment contributions, especially after such a positive year for markets in 2023. The younger cohort of investors clearly understand the benefits of long-term investing, hence why they want to be back in markets, with 42% saying they plan to reinvest when the time is right for them. However, it’s also great to see those very investors identifying risk and understanding any investments should be made long-term.”
Questions around cash allocation were asked only to those investors who hold cash assets in their portfolio (69 per cent), with this being the most held asset class in Australia, followed by domestic equities (54 per cent), cryptoassets and foreign equities (both 30 per cent).
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