Gen Y DIY investors set for heartbreak?

A RaboPlus survey of more than 500 do-it-yourself (DIY) investors has revealed a lack of investment education among generation Y DIY investors — leading to an overexposure to property and a misunderstanding of the fundamentals of the asset class.

The inaugural RaboPlus DIY Investor Survey looked at DIY investors with $150,000 or more in personal savings (including super but excluding physical assets) and who actively manage their own investments.

The study found a lack of investment education among generation Y DIY investors, reflected in particular in their attitude to property as an investment class.

“Generation Y came of age against the backdrop of a property boom, which has led to a preoccupation in investment property,” said RaboPlus senior manager, investments and managed funds, Tim Hewson.

The study shows generation Y DIY investors don’t understand the fundamentals of property, with those surveyed being “less likely to perceive investment property as risky and far more likely to see it as a short-term option offering a higher yield”.

The study showed that fewer than half of generation Y believe investment property is risky and are almost three times as likely as other DIY investors to view it as a short-term option.

DIY investors also appear to have a limited understanding of investment cycles, maintaining aggressive return expectations when compared to recent market performance.

Adjunct Professor Martin James, the managing director of Celsius Research, said many DIY investors continue to have “big expectations, when in reality none of the [asset classes] are offering anything like [previous years returns] in the current market”.

The survey found that generation Y DIY investors are more likely to have established a self-managed super fund (SMSF) than their generation X DIY counterparts. Those with SMSFs are more likely to consult a financial adviser, accountant or broker for investment education than those without.

According to the survey, only 36 per cent of DIY investors have diversified portfolios, and investors are more likely to be diversified if they have consulted a financial adviser.

The results showed that, on average, DIY investors would be happy with a 12.5 per cent rate of return on their investments, while investors with financial advisers expect a higher average of 13.3 per cent.

The RaboPlus survey found that females are more likely than males to seek guidance from financial advisers (19 per cent and 16 per cent respectively) as their main source of financial information. The trade off is that female investors expect a higher rate of return — 13.2 per cent as opposed to males’ 12 per cent.