Over a year ago, together with Nasdaq Digital, we launched the Smart Portfolio, a tool that allows investors to have their portfolio analyzed and gain insights based on the “wisdom of the crowd”. Since launching, over 200,000 investors have joined the Smart Portfolio with a few hundreds joining the community each day.
One of the things that interested us the most as a data company is what causes different investors from same segments (investor’s age, portfolio size, risk tolerance) to perform better than other investors. We were also interested to see if we can harness the wisdom of the crowd to create high performing investment strategies.
Our initial assumption was that Baby Boomers (ages 50+), which are well experienced in market turbulences will have more solid portfolios with lower risks compared to the millennials that tend to take more risks, especially in a bullish market.
When viewing all the portfolios of all generations, we found that the most popular holdings were Apple (AAPL), Amazon (AMZN) and Facebook (FB). In fact, about 30% of all portfolios had Apple.
Below is a breakdown of the ten most popular holdings among various age groups.
You can see the large exposure of younger generations (Under 30) to Tech shares. In fact, “Bank of America” is the only non-tech company in the top ten investments. Even Tesla, a vehicle company, is essentially a tech company with tech media buzz and coverage.
However, when observing the portfolios of ages 50+, you can see that the investments are more dispersed among different industries like Pharma (J&J, Pfizer) and Telecom (AT&T and Verizon), while focusing on shares that pay dividends. We found that investors ages 50+ yield dividends averaging 2.8%, while the younger generation yield’s around 1% and that’s mainly because Apple started paying dividends in the last few years.
So, who is a better investor? When we measured the performance of all the portfolios, we saw that although millennials take more risks, the portfolio yields of the older generations were better, the risk-adjusted return (Sharpe ratio) was higher. You can see that people aged 50+ had portfolios with an annual return of 11% on average (including dividends payments). However, shareholders aged 30 – 50 who invest more in volatile shares averaged annual returns of only 8%. Even when considering the success rate in choosing investments (percentage of investments that yielded positive returns) older investors achieved a ratio of 65% compared to 63% among younger investors.
It is important to note that results are based on data from August 2016 to July 2017 when the S&P 500 index Increased by 14%. In that period, the index performance bypassed the performance of private investors from all age groups.