One year ago, we discussed three main reasons to be optimistic about the outlook for 2021. We highlighted the revolutions in information, medicine, and energy continuing to deliver improvements in our quality of life. These revolutions are also driving a trend towards greater individual empowerment, allowing us greater autonomy in the way we live our lives. The markets shared our optimism. The US S&P 500 index rose over 22%, from January to November 2021, with few meaningful pullbacks along the way.
Last year, we also warned about an impending increase in inflation. As it turned out, US inflation, as measured by the Consumer Price Index, rose dramatically from 1.4% in December 2020 to 6.2% in October 2021, hitting thirty year highs. Many commentators now expect inflation to carry on rising before peaking in the second quarter of 2022. So far, that increase in inflation has been largely ignored both by central banks and the markets. They are assuming that the increase will prove to be temporary and will not spill over into sustained wage increases. If those assumptions are wrong, we will see interest rates rise and equity markets fall.
As we look ahead to 2022, we are even more optimistic about the future than we were last year, but for different reasons. People are waking up to the need to invest and taking 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 for society are looking brighter than ever. 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 recognised 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 in order 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, as 80,000+ have already been using Invstr Academy to learn. They want to be as social as they can be in Invstr’s feed, league system, and direct messaging. And they want to be able to test their ideas without taking real risk, as 1.3mm have done in Fantasy Finance®.
2. Investing is the new shopping
Two years ago, Invstr launched a rap competition for investing. We invited people to rap about investing using sixteen words relating to money and markets. Hundreds of people submitted applications. The public voted for their favorite tracks and Invstr awarded the winners thousands of dollars in bounties. At one of the kick-off events in New York, one of the young rappers said to me: “Investing is the new shopping.” How right he was!
In the last two years, we have witnessed a surge in the popularity of investing, with Main St investors challenging Wall St 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. 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. They told everyone that investing was complicated. They set high minimums, took a long time to open accounts, charged high fees, and underperformed the market year-in year-out. Today, platforms like Invstr make it easy for people to invest. We have no minimum balances and we offer fractional investing so that people can build diversified portfolios with small amounts of money. It takes as little as 90 seconds to open an Invstr+ account on a mobile phone. And we offer free banking and commission-free brokerage and crypto trading. 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.
I think that 2022 will be a bumpier year for financial markets than 2021. Inflation worries and geo-political tensions in Ukraine, the Middle East, and China will create more volatility than we witnessed in 2021. Investors can use platforms like Invstr to navigate these short term fluctuations and build long term investing skills and wealth.
What makes me optimistic for the future is the renaissance that we are witnessing in investing. More people now recognise the need to invest. Most people now have a desire to invest. Everyone now has the means to invest. At Invstr, we believe in people and our ability to overcome all problems when we have belief and respect for each other and when we work together. The desire to invest has been awakened and the means to invest are now more accessible for more people than ever before. Whatever 2022 brings, we will all be more prepared to build a brighter future.
Season’s greetings and best wishes for a healthy and prosperous 2022 from all of us at Invstr.