Many in the UK are concerned that the current market conditions will negatively impact their investment portfolios for the foreseeable future, and optimism on the outlook for global and domestic markets in the next 12 months has dropped 11% since the end of 2021, as highlighted by the latest Investment Forces research by Charles Schwab.
What is more, the current macroeconomic climate seems to be exacerbating the wealth gap between generations.
While more than half (55%) of British investors feel that the cost-of-living crisis is having a significant impact on their investment decisions, boomer investors are feeling the impact 16% less than their younger peers, and are the only generation to see an increase in the value of their investments since the end of 2021.
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Meanwhile, gen Z and millennial investors have seen a 9% and 12% drop in value respectively.
As performance declines, so does investors' confidence in their investing abilities, leading to greater difficulty in identifying value and making investment decisions with conviction.
Millennials have the lowest levels of confidence among investor groups: since December 2021, there has been a 16% confidence drop in the level of knowledge and skill they believe they have for investing in financial markets, and almost three quarters admit they do not know how to protect their investment strategies against losses in the current financial climate.
Meanwhile, 74% of gen Z investors have had to make extensive changes to their investment strategies in the last quarter to avoid substantial losses - three times the number of boomers - and more than one-fifth have changed the types of companies and the markets they invest in in the past three months.
Boomer investors, on the other hand, seem to be finding it easier to adjust to the current climate due to their experience and, at least in part, their low appetite for risk.
‘Safe' investments - whether in different markets or across asset classes - have become the favoured financial products for this older generation, and portfolio diversification is almost a given across the board: 91% understand the importance of diversifying in terms of what and where they invest.
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Almost all actively want to invest their money in markets they consider to be more ‘stable', which has led to a shift in preference for more international markets - and specifically the US - over the UK for the first time since this study began.
Over the past 15 months, the UK has dropped 9pp in the ranking of most attractive economic markets globally, while Europe, the US and frontier markets have all seen significant increases in popularity.
Boomers are also prioritising investing in more traditional assets during this period of volatility.
Known widely as a ‘safe haven' in times of market turbulence, gold is living up to its name as precious metal commodities have become the most favoured financial product for boomers currently; almost three quarters (74%) now invest in this asset class, an increase of 17% since December 2021.
Comparatively, neither gold, nor equities, which has taken the second spot for boomers, feature in the top five most preferred asset classes for gen Z.
For 73% of this group, mutual funds are the most favoured asset class, followed by non-precious metal commodities.
Younger generations discouraged
It is perhaps unsurprising that younger generations are more active and experimental when rethinking their investment plans in response to the cost-of-living crisis and market volatility.
But a string of losses is triggering a crisis of confidence, causing confusion and discouraging younger generations from investing altogether.
Since the end of 2021, the number of millennials increasing how much they invest has dropped by nearly 20%.
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Younger generations have a real opportunity to grow their wealth through investing, but also have the most to lose if they get it wrong.
During this period of economic transition, it is important for investors to focus on higher-quality factor - such as stable earnings and reasonable valuations - when choosing stocks, and ensure portfolios contain a mix of investments - including various types of stocks (large-cap, small-cap, domestic, and international), bonds, and cash investments - in appropriate amounts aligned to investors' goals, investing time horizon, and risk tolerance.
It is also important to rebalance portfolios regularly.
Over time, market changes can skew allocations from their original target: assets that have gained in value will account for more of a portfolio, while those that have declined will account for less.
Risk-averse investment decision making, in tandem with appropriate portfolio diversification, should help younger investors prosper when the global economy and markets do eventually stabilise.
Richard Flynn is the UK MD at Charles Schwab