Next Gen Investors
The media has discussed next gen investors in a number of articles in recent years as the future of financial advice. These next gen investors include both millennials and Gen Z. The oldest millennials will be turning 41 this year and Gen Z is defined as those ranging in age from their late teens to their mid-20s. According to data from 2021, there are 72 million Millennials in the U.S. making them the largest generation, surpassing Baby Boomers. The survey indicated that there were about 69 million members of Gen Z as well. These next gen investors will soon become the dominant groups of investors and will shape the investment landscape in the U.S. for years to come. A survey by Natixis Investors indicated that Millennials with investable assets of $100,000 or more are the most likely group to use a financial advisor at 75%. This compares to Baby Boomers at 70% and Gen X at 67%. What differentiates Next Gen investors? Unlike any generation of investors before them, Millennials and Gen Z investors are the most globally connected generation of investors. This is especially the case with the younger Gen Z investors. Additionally, next gen investors are more racially and ethnically diverse than prior generations of investors. More Millennials are first generation immigrants than previous generations, with a high percentage of Gen Z being the children of immigrants. Social media is a big part of this generation’s lives and they get much of their information and news about a lot of topics this way. This includes financial and investing as well in many cases. Gen Z was hit extremely hard by the pandemic. According to one study, over half of older Gen Zers reported that someone in their household either lost their job or experienced a cut in pay due to the pandemic. The percentages for Millennials, Gen X and Baby Boomers were a bit lower. This is a similar experience to what Millennials experienced during the Great Recession of 2008. Advancements in Technology Advances in technology have made investing more accessible for Millennials and Gen Z at an earlier age than with past generations. Gen Z especially has taken advantage of robo advisor platforms and other online platforms like Robinhood. What factors influence their investment strategies? Many next gen investors invest based on their values. This may be in the form of ESG based investments, or the avoidance of companies whose business model they feel runs contrary to their values. This isn’t to say that older investors do not invest at least in part based on their values, but this is very prevalent among Millennials and especially Gen Z investors. Another area where next gen investors differ from many of their older counterparts is their interest in digital assets like Bitcoin and cryptocurrencies. Next Gen Preferences: Robo Advisors vs Financial Advisors? Next Gen investors, especially Gen Z, are often drawn to robo advisors or apps like Robinhood. These investors were raised in a digital world so taking a digital approach to investing is a natural path for many of these young investors. Many robo advisors offer access to quality advice via algorithms based on sound investment principles on a 24/7 basis. It is, however, a misnomer that Millennials do not want the advice of human financial advisors. In fact this generation has taken the lead in engaging the services of financial advisors as the older Millennials are now in their early 40s with retirement and other major life goals in place. Millennials often have a different vision of working and retirement than their parents. Many in this group envision retirement, or at least semi-retirement in their late 50s versus working well into their 60s as prior generations have traditionally done. The Natixis survey indicated that 82% of Millennials felt that time spent with a financial advisor is an important component of their planning. Attracting Millennial and Gen Z investors can be a challenge for advisors. Experts in this area suggest engaging them in ways that are comfortable for them, including: Advisors should develop a digital presence and provide next gen investors with informational content tailored to them. This content should be focused on a single aspect of their financial planning and investing. Content that tries to “do it all” in one step can be overwhelming and turn these younger investors off. This content should try to help advisors engage with this generation on issues of interest to them like socially conscious investing. Gen Z and Millennials are the next generation of advisor clients. Wedbush financial advisors are very interested in working with this generation of investors and are eager to help them achieve their financial goals. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
The Future Outlook for EVs
Sales of electric vehicles (EVs) doubled in 2021 from the prior to a record level of about 6.6 million vehicles worldwide. In 2012 this number was just 120,000 EVs sold. The popularity of EVs, coupled with the recent ruling in California regarding the sale of gas powered vehicles and the recent incentives passed by Congress, bode well for the future of EVs. What could California’s recent decision to phase out the sale of gas-fueled vehicles mean for the rest of the country? California’s recent decision to require that all cars, trucks and SUVs be powered by electricity or hydrogen by 2035 could have huge implications for the rest of the country and certainly the automobile industry. The rules allow for 20% of vehicles sold in California after 2035 to be plug-in hybrids, but the rest must be powered by electricity or hydrogen. Washington and Massachusetts have indicated that they will look to adopt similar measures to those adopted by California. New York, Pennsylvania and 15 other states have already adopted some or all of California’s vehicle emission standards that are stricter than those in place at the federal level. As the largest auto market in the country, and a large and influential state politically, it’s not surprising that other states have indicated that they are considering following California’s lead. Changes to the EV Tax Credit The recently passed Inflation Reduction Act offers an EV tax credit to encourage consumers to purchase EVs. The new credit, which takes effect on January 1, 2023, differs from the existing EV tax credit in several ways. The existing tax credit applies only to new vehicles. The new tax credit includes both new vehicles and used vehicles. The maximum credit for a new vehicle is $7,500 regardless of how many new vehicles are sold in total, the maximum used vehicle credit is $4,000. Unlike the existing credit, the new credit is applied at the time of sale, buyers do not have to wait to receive the credit when filing their income tax return for the year. This can be helpful in cases where the buyer is financing the purchase, this immediate credit can help reduce the amount they need to borrow. The new credit does include restrictions on the buyer side. First the MSRP of the vehicle must be below $55,000 for sedans and $80,000 for SUVs, vans and trucks to be eligible for the credit. This will preclude buyers of higher end EVs from receiving a credit. There are also restrictions on the buyer’s modified adjusted gross income (MAGI) in order to qualify for the credit. There is no such restriction with the current credit that is in place. For single filers their MAGI must be no greater than $150,000, for those who are married and file jointly the MAGI limit is $300,000 and for those filing as head of household the limit is $225,000. The thought process here is likely that higher income buyers don’t need this type of incentive to persuade them to buy an EV. Another key difference, and a factor that will limit which vehicles qualify for the new credit, is that eligibility for the credit is limited to vehicles manufactured in the U.S. and that are powered by batteries whose materials are sourced from the U.S. or countries considered our free trade partners. This could actually allow fewer vehicles to qualify than under the rules surrounding the current credit. Many American EV manufacturers, including Tesla, utilize battery materials purchased in China. The language in the bill classifies China as a foreign entity of concern making these vehicles ineligible. Additionally, any vehicle that is not assembled in the United States, Canada or Mexico is ineligible for the credit. The end result of these restrictions is that fewer manufacturer’s vehicles will qualify for the credits, it will remain to be seen how this impacts the number of buyers who qualify. Even with these restrictions and complications, the combination of the new tax credit and the ruling in California and perhaps other states should help stimulate the sales of EVs. Daniel Ives, Managing Director and Senior Equity Research Analyst covering the Technology sector at Wedbush Securities says, “This EV tax legislation is a watershed event for EV adoption in the U.S. over the next decade. We believe this will be a key catalyst to accelerate EV adoption by 10% in 2030 vs less than 3% today. The California 2035 act will further propel EV adoption with Tesla, GM, Ford and Rivian front and center.” To discuss if investing in the EV sector is right for your portfolio, please contact your Wedbush financial advisor. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
October: Financial Planning Month
Each year in October we observe Financial Planning Month. With the holiday season and the end of the year just around the corner, Financial Planning Month is a great time to step back and take a look at our own financial planning needs. Steps in the financial planning process The steps will vary depending upon your situation and your stage of life. Here are some things to consider. There are a number of things that should go into a financial plan, including: Setting your financial goals Putting together a statement of net worth Budgeting and cash flow planning Retirement planning Establishing an investment strategy Estate planning Tax planning Once you have done an initial financial plan, it should be revisited and revised as needed over time. Things can change as far as your financial situation and your goals are concerned. For example, you may have gotten married, divorced or become a widow(er). Perhaps you had a child. Over time things can change. As you age, your risk tolerance may diminish a bit. Investment gains over time can get you closer to your goals and impact how your investments should be allocated. These and other factors are good reasons why you should revisit your financial plan periodically and revise when needed. Areas that are often updated in revising a financial plan include your investments, your budget and spending plan and the amount needed to achieve a comfortable retirement. Things change over time, both your own situation as well as external circumstances like the markets. Your financial plan needs to be reviewed to ensure that it still reflects your needs and offers a solid path to achieve your goals. An emergency fund A key part of any financial plan is an emergency fund. In short, things happen. Many experts suggest that your emergency consists of enough liquid assets to cover 3-6 months of normal expenses in the event of an emergency. An emergency might be a prolonged illness or a job loss. It could also be an unexpected major repair to a car or your home. Money earmarked for your emergency fund should be held in a liquid account like a checking, savings or money market account where it can be easily accessed. Holding this money in an investment account is generally not suggested as stocks and other holdings can fluctuate in value. You might also incur capital gains taxes when liquidating these assets if held in an investment account. Budgeting for holiday travel and shopping As we approach the holiday shopping and travel season, this is an area that you should be budgeting for. For many families, their spending during this time of year puts a hole in the budget for many of the following months. This can include limiting their ability to contribute to their retirement plan or to save for their children’s college educations. It is a good idea to set aside some money in your budget each month to cover this higher period of spending so you don’t find yourself having to incur interest on your credit cards or straining to cover these costs during this joyous time of the year. Robert Kennally of the Wedbush Securities Los Angeles office says, “The Kennally Group believes financial planning is bringing the future into the present and making dreams a reality. We encourage you to reach out to your financial advisor to revisit your plan as dreams and realities are ever changing.” With Financial Planning Month and the end of the year upon us, this is a good time to review your financial plan, or to do a financial plan if you don’t already have one in place. This is especially true as we deal with a stock market decline, inflation and rising interest rates. Contact a Wedbush advisor to help you with your financial planning and investment needs. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.