Younger investors lead charge into stock market

[Musicwhiz]

Rite of passage? They are trying to make it sound so "rite-eous"! It's just a place to grow your money above inflation that's all....

Feb 10, 2011
Younger investors lead charge into stock market
They tend to bypass brokers, trading online on their own
By Yasmine Yahya & Jonathan Kwok

MS DENISE Ng began trading on the stock market three months ago. The 24-year-old lawyer said she chose to invest in shares as they offered her the kind of yields she was seeking.

'Interest rates are so low now, so bank deposits would give me very low returns,' she said, referring to rates that are typically well below 1 per cent.

'I also contemplated buying insurance policies, but I wanted more control over where I put my money, instead of letting an insurance firm invest it for me.'

There has been rapid growth in the number of retail investors entering the local stock market over the past five years, and younger investors such as Ms Ng are among those driving this phenomenon.

According to the Singapore Exchange (SGX), the number of active retail Central Depository (CDP) accounts has grown by 65 per cent in the past five years to 251,901 as at the end of last December. CDP accounts are where share trading funds are held.

The bulk of this growth came in the last two years, with the number of active retail CDP accounts jumping 37 per cent between 2008 and last year.

Active retail CDP accounts refer to trading accounts that have executed at least one trade in the past three months.

SGX does not keep track of the age profiles of retail investors in the market, but its assistant vice-president, Mr Ong Cheong Jin, said there is anecdotal evidence to suggest that an increasing number of younger Singaporeans are entering the stock market.

'From my observations, there are more and more young investors attending our seminars, and they are hungry for knowledge,' he said.

Brokerage firm Kim Eng noted that for the past two years, it has seen a year-on-year increase in the number of new clients aged 40 and below opening trading accounts.

The reasons for entering the stock market among these young investors are varied. Some, like 32-year-old media professional Phoebe Koh, are already building their nest egg.

'I'd like to think retirement is a long way away but I'm past 30 now so I know I should start investing for it.'

Others, however, decided to dabble in the stock market simply as a way to raise some spare cash.

'The intention is not really to get enough for retirement, because my principal is not substantial,' said 24-year-old engineer Serene Heng.

'I can't make a fortune. It's more of an extra income source.'

Business development manager Marcus Wee, 26, agreed.

'I'm not thinking about retirement yet. It's more to get extra cash from dividends and capital gains. Parking money in the bank, you don't even earn enough interest to offset inflation,' he said.

Teacher Jay David, 33, saw investing in the stock market as a rite of passage.

'I look at it as something you do as you grow older, like buying your first car or your first house. I've bought the car, so now I'd like to start investing.'

Remisier Lee Kum Swee noted that he has seen more young investors, aged between 25 and 35, entering the market since June last year, as shares continued their strong rebound from the crisis.

The benchmark Straits Times Index (STI) plunged to a low of 1,495.65 in March 2009 during the financial crisis. It has since more than doubled. Yesterday the STI closed at 3,150.56.

Mr Lee added that these tech-savvy younger investors tend to bypass brokers and execute their own trades using the Internet.

Managing director of OCBC Securities, Mr Hui Yew Ping, agreed.

'Since the launch of iOCBC TradeMobile (a trading application for mobile phones), we have seen over 20,000 downloads, which shows that investors are getting increasingly tech-savvy and are keen to leverage technology to aid in their investing.'

Such developments are not lost on SGX. The bourse operator organises many seminars and courses every year to educate the investing public, but now plans to roll out more Internet-based education programmes to target this growing pool of young investors.

'Last year we launched web clips on themes such as understanding IPOs (initial public offerings) and how to read financial reports, and these got quite a good response,' noted SGX's senior vice-president and head of sales and distribution, Mr Rama Pillai.

'We are in the process of creating more of these web clips, which will highlight the benefits and, more importantly, risks of various investment products.'

yasminey@sph.com.sg

jonkwok@sph.com.sg

[kazukirai]

Seasonal overpopulation of lemmings has begun.

Extracted from Wiki article on lemmings.

The behavior of lemmings is much the same as that of many other rodents which have periodic population booms and then disperse in all directions, seeking the food and shelter that their natural habitat cannot provide. The Norway lemming and Brown lemming are two of the few vertebrates who reproduce so quickly that their population fluctuations are chaotic, rather than following linear growth to a carrying capacity or regular oscillations. It is unknown why lemming populations fluctuate with such variance roughly every four years, before plummeting to near extinction.

While for many years it was believed that the population of lemming predators changed with the population cycle, there is now some evidence to suggest that the predator's population may be more closely involved in changing the lemming population.

[yaosheng]

I am curious how profitable the new entrants would be, given that we already had 2 years of rising markets and bullish sentiments are widespread.

[jeremyow]

There are two ways to see this trend of younger investors entering the stock market.

The first way is that this is a good sign as it means more younger people are taking charge of their financial planning and see the need for investing early so as to build up their retirement nest egg. In doing so, they also actively acquire investing knowledge by attending seminars conducted by SGX or brokerage firms, as well as through online investing articles and videos. Also, younger people realise that investing in equities is the best way to fight inflation (if it is done properly), as equities are not fixed income investments unlike bonds and fixed deposits.

However, the other way to see this same trend is that there may be more younger people who thinks they can make big money by stock investing. Some young people may see stock investing as a trendy hype that can offer substantial money making opportunities. "All my friends have entered the stock market and are making money and I should also join in the fun and make some money for myself and who knows, I may even make more money than them?"

I believe both types of people exist, one who goes into stock investing with a prudent mind and the other who sees stock investing as a sure thing with regards to money making. These two types of thinking may not only be found in young investors, they are found even in older investors I believe.

Knowing and doing are two separate things. Having investing knowledge is the prerequisite for making wise decisions. However, the heart may be a deceiful creature easily distracted by temptations to go the wrong path despite warnings from knowledge.

Keep learning about investing and guarding one's heart to only carefully follow fundamentally sound investing knowledge. Afterall, investing is about growing one's wealth for the long term. One will have achieved his destination (say after 30 years of stock investing) if his final wealth has multiplied from an initial amount, the more it has multiplied, the better should be the particular methods in which he has applied over the years to stock investing.

[kazukirai]

The first way is that this is a good sign as it means more younger people are taking charge of their financial planning and see the need for investing early so as to build up their retirement nest egg. In doing so, they also actively acquire investing knowledge by attending seminars conducted by SGX or brokerage firms, as well as through online investing articles and videos. Also, younger people realise that investing in equities is the best way to fight inflation (if it is done properly), as equities are not fixed income investments unlike bonds and fixed deposits.

The road to Hell is always paved with good intentions.

I believe most people that dip their toes in the market begin with a fundamental/prudent mindset. After all, many horror stories abound about horrific losses from playing the market and even casual reading of the papers or stories shared among relatives will throw up a few of these.

However, once a person is in the market i.e. has money vested, it's a different ball-game. Most people have psychological profiles that cause them to be loss-averse, suffer from overconfidence bias, extrapolation bias, social proof and the lot. Even those who are aware of the existence of such behaviour succumb to it. So what more those that aren't aware?

Note: This isn't so much a distinction between Investing and Trading. I believe, to my limited knowledge, in Trading, there is also the time-tested advice to stick to a game-plan. The traders that end up worst off are the ones that don't stick to their plan and also suffer from the said behavioural habits above.

[Satchmo]

Mid to late twenties onwards considered young(for starting on investing)? I would think young means early twenties onwards. It's not unexpected lah, considering the media/gov started to emphasise on investing for years now.

Just hope not too much young ones get slaughtered in the next tumble, perhaps just blooded.

[Ben]

'The intention is not really to get enough for retirement, because my principal is not substantial,' said 24-year-old engineer Serene Heng.

'I can't make a fortune. It's more of an extra income source.'

Business development manager Marcus Wee, 26, agreed.

'I'm not thinking about retirement yet. It's more to get extra cash from dividends and capital gains. Parking money in the bank, you don't even earn enough interest to offset inflation,' he said.

People who have this mindset clearly are not serious about investing. These are the people who will quickly take profit when their stocks rise by a few percentages, making them extra cash. Their confidence will be boosted and they will return with more money until one fine day, when bear strike, they will froze and see their portfolio went down significantly, losing all previous gains and more.

The mentality is no different from one who go to the Casion knowing that they will not make a fortune but hoping to make some extra money.

[kazukirai]

Mid to late twenties onwards considered young(for starting on investing)? I would think young means early twenties onwards. It's not unexpected lah, considering the media/gov started to emphasise on investing for years now.

Just hope not too much young ones get slaughtered in the next tumble, perhaps just blooded.

I guess young because they would have only just started working and begin getting some form of substantial income?

Or 'young' as in relatively inexperienced in the stock market and the working/business environment in general? Or both?

Like you, I too hope that many young ones not get slaughtered...I'm one of them after all.

[valuehunter]

On the surface, it is indeed worrying to see that well educated professionals lack adequate financial literacy. This is perhaps why value investors are the minority in the investing world.

[Aspellian]

When the tide turns (badly), remember to cut loss and fight again another day. protection of capital is as important as having a margin of safety.

5% loss requires a 5.3% gain
10% loss re 11.1% gain
20% loss re 25% gain
30% loss re 42% gain
40% loss re 67% gain
50% loss re 100% gain
60% loss re 150% gain
70% loss re 233% gain