Younger investors prioritize progress toward goals over absolute returns, study finds

By Newsdesk

May 29 2024
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A recent examination of results from Dimensional Fund Advisors' Global Investor Study reveals that younger investors tend to care most about seeing progress toward their goals, whereas older investors are more interested in absolute returns.

Younger investors prioritize progress toward goals over absolute returns, study finds

The study, which collected 38,976 responses from 2017 to 2019 and 2021 to 2023, found that 33% of young investors (those younger than 40) selected "progress toward my goals" as the most helpful metric when looking at the performance of their investments. In contrast, only 18% of older investors (those older than 60) prioritized this measure, with the majority favoring percentage returns over a given period.

"Young investors were almost twice as likely to prioritize progress toward their goals as older investors," said Gordon Titman, Associate, Research at Dimensional Fund Advisors.

The results were consistent when survey respondents were asked how they primarily measure the value they receive from their advisor. Of the 87,173 responses collected from 2016 through 2023, 31% of young investors selected "progress toward my goals," compared to just 13% of older investors.

The data also revealed that younger investors tend to have a higher tolerance for drawdowns. When asked at what level of negative returns they would call their advisor to make a significant change to their investments, only 14% of young investors said they would do so if the market drops by up to 15%, compared to 21% of older investors.

"The emphasis on goals-based investing and a willingness to accept drawdowns creates an opportunity for advisors to better serve their younger clientele through targeting equity premiums while maintaining a broadly diversified portfolio," Titman said.

Research by Dimensional shows that taking advantage of reliable equity premiums, such as the size, value, and profitability premiums, can improve retirement outcomes. Efficiently targeting these premiums can reduce the likelihood of running out of money in retirement and lead to larger bequests.

The findings highlight the importance of advisors understanding the distinct preferences of younger clients and adjusting their service models accordingly. Recognizing and adapting to younger investors' focus on progress toward goals may make it easier for advisors to win over the next generation of clients.

"When advisors understand the distinct preferences of younger clients, they can refine their service models and engage planning technology that helps drive discussion around goals and financial well-being," Titman concluded.

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