In late 2020, I laid out a few reasons to be optimistic about the outlook for 2021. I spoke about revolutions in information, medicine, and energy continuing to deliver improvements in our quality of life. The markets shared my optimism and the US S&P 500 index rose over 22%.
We also saw headwinds forming. Inflation and rising geopolitical tensions were cause for concern. As it turned out, US inflation rose and continues to rise dramatically hitting thirty-year highs. War broke out and continues in Ukraine, senselessly taking lives and roiling international markets.
While investing may seem trivial in the face of war and hunger, we are still optimistic about the future of people’s financial well-being. More people are consistently waking up to the need to invest and take charge of their financial future. They understand that when they invest, they help to create better outcomes for themselves and for society in the future, irrespective of what happens to the markets in the short term.
So, while the outlook for the markets may be less clear than it was a year ago, the longer-term prospects are still bright. Below are three of the factors driving this change:
1. The rise of sustainability
Sustainability has become an important part of our political, social, and economic discourse. While environmental sustainability has been the main focus, financial sustainability is starting to be recognized as a major issue. Since the financial crisis of 2008-09, global debt has soared from $170 trillion to $296 trillion. That is money that we have stolen from our children and grandchildren, because they are the ones who will have to pay it back. More people now recognize that if we want a financially sustainable future, we need to stop borrowing and spending, and start saving and investing.
Fortunately, younger generations understand this intuitively. They grew up in the wake of the financial crisis. They have now started to invest to create a better future than the one that they are set to inherit. And they are realizing that investing is about more than buying and selling stocks. They want to be educated and social and these are great signs.
2. Investing is the new shopping
In the last two years, we have witnessed a surge in the popularity of investing, with Main Street investors challenging Wall Street in stocks like Tesla, AMC, and GME. There are several characteristics that differentiate the way that young investors invest:
They want to do it for themselves: the information revolution has taught younger generations to be autonomous in everything they do. Managing their money is no different and is leading to a rise in self-directed investing.
They are far more social and less private about money and investing. And, they are happy to share their trades both good and bad – and get what they consider to be objective advice from their peers.
They are more inclined to buy and sell rather than buy and hold, especially when trading appears to be free. So, transactional volumes are rising. It is estimated that US retail equity trades have risen from 10% to 25% of total trading volumes.
Young investors want to invest in crypto, which has now become an established asset class.
Young investors are choosing new fintech platforms that offer all these features, rather than traditional brokers and wealth managers.
For many years, the financial industry made it hard for ordinary people to invest. That is no longer the case. The ease of investing has now made investing accessible to most, if not all, people.
3. The lessons of Covid
All of us experienced Covid in a different way. Some suffered more than most, falling sick or losing loved ones. Covid was also a major shock to the global economy. However, Covid has taught us one important lesson and that is the need to invest: as a society in our medical systems; as businesses in our supply chains; and as individuals in our own personal health. This lesson is one that is likely to endure as we continue navigating the pandemic.
2022 has been a bumpy year for financial markets. There are inflation worries and war in Ukraine. Tensions in the Middle East, and China will continue creating volatility. Investors can use a myriad of platforms to navigate these short-term fluctuations and build long-term investing skills and wealth.
About the author
Kerim Derhalli is the Founder & CEO of Invstr, an award-winning financial education and investment app. Invstr’s mission is to empower everyone to take charge of their financial future. Invstr was recently dubbed the #1 ‘anti-Robinhood’ by Forbes magazine. Invstr has been downloaded over 1,000,000 times by users in over 220 countries.