The "Stock Market" is out and "Buy To Let" is in for young investors

Recession-scarred young investors are turning their backs on the stock market, spurning the advice of financial institutions and professional advisers, and opting for a buy-to-let property as their pension.

After watching their parents and grandparents lose money in pension funds as a result of stock market crashes, many young savers are choosing to keep their money in cash, or invest it in property instead.

Although pension investment has fallen across all age groups, declines in savers are steepest among those aged 22-29, falling from 43 per cent in 1997 to 24 per cent today, according to research by the Department for Work and Pensions.

However, buy-to-let mortgage agents say that they have seen a recent rise in the number of younger investors interested in buying flats or houses to rent.
London-based letting agent Ludlow Thompson said that about 15 per cent of its landlord clients were in their 20s, up from 5 per cent before the crisis.

“Many of the young landlords we see are bankers or traders who view buy-to-let as a reliable alternative to the unpredictable stock market that they work in day-in, day-out,” said Stephen Ludlow, director. “They often use their annual bonus as the deposit for a buy-to-let mortgage.”
Agents say the upturn in buy-to-let investor activity has been driven by low mortgage rates, rising rents and continued belief in the forward momentum of property prices.

Oliver Sloboda, 31, used to work as a commercial director for a conference company and now runs research company SCM World. Despite earning a six-figure salary, he has never saved money into a pension fund, and has instead bought two buy-to-let properties in London.

“I see my property and business as my pension,” he said. “My dad thinks I’m mad, but it’s a generations thing. My friends, those who work in banking and who have bonuses, have done the same and bought property. I don’t know anyone who would take a lump sum and give it to a pension manager. You read stories about pension funds collapsing and volatile equities and high fees and it isn’t appealing.”

Young savers have traditionally held below-average levels of equity as their disposable income tends to be small, but economists say this trend has been exaggerated by recent events.

Research from Stanford Graduate School of Business last year found that “depression babies” who live though huge macroeconomic events such as the banking crisis at a young age go on to be less willing to take risks with their money throughout their lifetime.

Investment advisers caution that although this behaviour is understandable, it could impede the long-term growth of money saved, plus have a knock-on effect for corporate growth.

“Over time if younger people aren’t investing in equities this will make a difference to everyone,” said Gervais Williams, managing director of MAM Funds, the asset management group. “If you have a generation who are despondent, then it impedes our ability as an economy.”

From October, UK workers will be automatically enrolled into a workplace pension under a government plan to improve saving levels, but the DWP believes that up to 40 per cent of people may opt out of the scheme.

“We know the proportion of young people saving in a pension has fallen more dramatically than other groups,” said Steve Webb, minister for pensions.
Gregg McClymont, Labour’s pensions spokesman, said that providers had lost much of their former reputation as a safe and prudent industry. “There is a lack of confidence, after the mis-selling scandal, and the lack of disclosure on costs and charges is also an issue for people’s trust,” he said.

Hal Ratner, investment analyst for research company Morningstar, said that companies should take partial responsibility for the disengagement from young investors in the UK, US and Europe.

“What happened in the equity market has caused young investors to be concerned and the investment community needs to treat this audience with respect and explain why these investments are important in the long term,” he said.

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