The fastest-growing group of online investors is younger than you think.
As people are becoming increasingly concerned about their financial futures, investors are starting younger and planting their stakes in the Internet. While investors in their late 20s to mid-40s comprise the bulk of those making trades online, a new boom in online investing is taking place among those 25 years old and younger.
"This is the segment of the population that grew up with technology, and they feel comfortable making those transactions online," said Judy Balint, senior vice president of global marketing and strategic business development at E*Trade (EGRP).
As more college graduates enter the workforce having used computers and the Internet at their college campuses, this demographic group likely will accelerate the youthful investment trend. Industry-wide figures are not yet available on the growth rate of online investors in the 25-and-under set, but a number of brokerages offering online investments cited anecdotal evidence that Generation Xers have morphed into Generation Investors.
E*Trade's customers, for example, are largely in the 26- to 45-year-old age range, but the 25-and-under segment is seeing the fastest expansion, Balint said. This group makes up 3 percent of E*Trade's accounts, but that share is expected to increase as growing numbers of Internet-savvy young adults enter the workforce.
E*Trade is not the only online brokerage to take notice of this demographic trend. Schwab (SCH) said its typical online customer is ten to 15 years younger than the average customer of a traditional full-service brokerage--a fortysomething baby boomer. Statistics show that such traditional investors also tend to be college-educated white males who earn more than $50,000 a year.
According to a recent report by Forrester Research, the online investing community can be broken down into two basic groups. One is the "New Age Nurturer," motivated to use the Internet by a desire to help family. The other falls under a category dubbed "Fast Forward," which refers to investors motivated by personal advancement, and by the control and convenience the Internet makes possible.
While the "Fast Forward" group makes up only 30 percent of the U.S. population online, it is twice as likely to invest online than the "New Age Nurturers" that account for the remaining population, according to Forrester. The younger group is a major contributor to the online trading boom, and Forrester projects that by 2002 there will be 14.4 million online broker accounts overall, compared with the 3 million accounts online at the end of 1997.
Online brokerages point out that online investors are most likely to sink their funds into high-tech companies. Indeed, the fact that these investors are using technology to access their virtual brokerages means that most come to the trading table already familiar with such industry stalwarts as Microsoft (MSFT), Intel (INTC), Netscape Communications(NSCP), and U.S. Robotics, said Don Montanaro, CEO of SureTrade.
"Our customers take a higher stake in tech stocks because they are tech users," Montanaro said, adding that half of his customers trade in tech stocks. "To be out there, regardless of what job you have, you know Microsoft and modem companies, and access providers, and it is a natural fit."
In their efforts to attract online investors, firms ranging from online brokerage Ameritrade to traditional brokerage of Donaldson, Lufkin & Jenrette have turned to full-page ads in financial newspapers to market their services. Others are matching their marketing strategies to the high-tech profile of online investors, placing banner ads on other corporate Web sites.
A key goal of the marketing strategy for online brokerages is to entice offline investors online. Also important is the ability to distinguish a brokerage's online services from that of its competitors, which has resulted in ads that emphasize low rates, reliable services, and research resources.
Competition is quickly growing intense. Eighty percent of the brokerages interviewed by Forrester--full-service firms, discount brokerages, mutual fund providers, and banks--offer online services today. The other 20 percent will follow suit within the next year.
With online trades costing about half as much, in terms of commission, as their offline counterparts, more and more investors are being lured by the financial incentives being dangled before them. Investors using online brokerages tend to be the same ones who gravitate toward traditional discount houses, which require investors to make their decisions without the advice of a stock broker.
Ameritrade, for example, charges a flat-rate commission of $8 to execute an Internet trade, $12 for a touch-tone phone trade, and $18 for a broker-assisted trade. Schwab's broker-assisted discount services cost $55 per transaction for 100 shares or less, compared with $29.95 for the same transaction online.
But not all brokerages are convinced that younger is always better when it comes to online investors. SureTrade, for example, believes that there may be diminishing returns in going after Generation Investors, who often need much time-consuming guidance.
"We are not aiming to get the 18-year-olds. Our goal is to acquire folks in the 35-year-old range," Montanaro said. "We want investors who already know what they are doing and that don't need to have someone explain what a mutual fund is. We aren't going to be the hand-holders."