The American market had an interesting evolution in 2019. The stock market hit 19 new all-time highs in just twelve months, AI and green businesses consolidated their market share, and B2B Fintech companies are creating a dynamic new ecosystem for newcomers. All of these events influenced the economy and triggered some changes in the behavior of investors, who are responding to innovation. So, what are the top investment trends that ruled the North American market in 2019 and how are they expected to impact the economy?
Real Estate is the New Leader
After years of dominance from the stock market, Americans are turning to real estate as their preferred investment option. The market is slowly recovering from the housing crash and, according to a new study, 31% of Americans chose to invest in real estate using the disposable income from a 10-year period. This is the highest rate in the past seven years and it's also interesting to point out that this trend was consistent across all income categories. Even millennials, who for a long time were thought to be against buying houses, now show a change of attitude. Statistically, 36% of millennial Americans would like to invest in housing in the long-run, followed by 30% of baby boomers and 23% of the Silent Generation. Now at prime property-buying age, millennials are changing the face of the real estate market. Although a considerable percentage of them understand the financial benefits of buying instead of renting, millennials also understand that they don't have the funds to buy the properties built by boomers. As a result, the megamansions built in states like Florida and the Carolinas are in less demand, whereas small, minimal, conveniently located family homes are on the rise. Millennials are no longer attracted by large properties and instead, they are willing to compromise and purchase smaller houses, as long as they are located in a good neighbourhood with access to schools, supermarkets, and public transport hubs.
More than half of Americans own stocks
After ranking as the #1 investment option for Americans in 2018, stocks came in on #2 in 2019 and Millennials and Gen Z were the ones to opt out the most. However, even if stock ownership has fallen, it's still relatively high. According to the Federal Reserve, 52% of Americans invest in stocks and this percentage can increase if we also count the ones who don't invest in stocks directly, but have retirement accounts invested in the stock market.
Compared to real estate investments, which are popular across a wider demographic, stocks seem to be reserved for high earners. People who had an annual income of at least $50,000 chose the stock market as their preferred investment method and, the more the annual income grows, the likelier people are to put their money in stocks. The average annual income for the American investor who owns stock is $90,000. As for the other half who doesn't invest in stocks, the majority are low-income individuals (less than $45,000) who don't contribute to retirement accounts, but in this category, there are also affluent people with lucrative pension plans from work who don't feel the need to invest anywhere else. According to an analysis by the Wall Street Journal, the divide between high and low-income individuals will continue to deepen and the ones who don't currently own stocks will be left behind. As experts continue to point out, high annual income is no longer a strict requirement for investing in stocks and neglecting the opportunities behind 401(k) plans means missing out on financial comfort later in retirement.
Canadians are Skeptical of DIY Investments
Compared to the United States, where the popularity of stocks, bonds, and mutual funds continues to grow, Canadians seem to be more cautious and prefer traditional options. Instead of putting their money in the stock market or investing in technology, Canadian investors are likelier to start their own business. As one of the markets where FinTech had an astronomical growth, Canada is home to many private lenders specializing in business financing, so capital is not so hard to come by. Additionally, this is a great time to acquire businesses in Canada because the country is experiencing a slow, but steady economic growth.
Apart from this, Canadians choose to invest long-term savings into retirement, buying family property or a family vehicle, renovating their property or saving for their children's higher education. The Organisation for Economic Co-operation and Development also forecasts that Canadians will save only a little over 3% of their disposable income in 2020 (almost three times less compared to the US), and that's mostly because Canadians prefer to direct money towards closing their debts.
Lack of clarity and certainty also has a role to play. One study showed that 40% of Canadians have financial goals and would like to invest, but they don't know where to start and are afraid that the DIY approach could be detrimental to their finances. Experts are hoping that things will change in the following years and that widespread access to educational resources and personal finance workshops will offer Canadians more insights into the basics of investing.
Cryptocurrency and Young Investors
Although cryptocurrencies haven't yet reached their full impact, they have shaken up investment habits and they've even convinced the previously uninterested younger demographic to start investing. Despite the fluctuations (and the fact that it didn't even exist 10 years ago), Bitcoin was 2019's best-performing asset, doubling in value and even surpassing tech stocks. Millennials and Gen Z have been the fastest to embrace the crypto revolution and, despite the volatility, the rate of crypto investments will likely continue to grow and cater to those who prefer alternative investments.
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