Economic resilience requires making investing simpler and easier

By Christian Hyldahl, Head of Continental Europe at BlackRock

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Across the world, the economic turbulence of recent years, combined with lingering uncertainty has underpinned the importance of financial resilience and well-being across the breadth of society.

This is particularly salient in Europe, where in addition to recent economic and geopolitical disruption, we are facing the long-term challenge of an aging population and questions over the future evolution of pension systems in many countries.  This is but one reason why the debate over how to promote greater household participation in capital markets is so important for Europe.

Promoting a deeper pool of long-term retail investment in Europe can be seen through the lens of underpinning the European economy and addressing investment gaps in energy and technology infrastructure. But we should not forget that this is ultimately about the financial well-being of European households and savers. Recent European Commission data underscores the urgency, revealing that only a third of Europeans could cover living expenses if they lost their jobs, stressing the need for greater long-term investment behaviour.¹

Whilst cost of living pressures and economic uncertainty may not seem fertile ground for promoting a more meaningful investment culture, it is even more important than ever.

Enhancing the pathways for European citizens to have easy and affordable access to financial markets should be the focus of efforts to turn millions of savers into first-time investors. Technology already offers us important new ways to facilitate a new investment ecosystem alongside traditional offerings by banks or wealth managers, drawing on the general public’s increased appetite for all things digital since the pandemic.²

The use of digital investment platforms offered by online brokers and forward-thinking banks has emerged as the preferred choice for a new generation of investors eager to seize control of their financial future. This trend represents a seismic shift which is reshaping Europe's savings landscape and is propelled by the growing use of Exchange Traded Fund (ETF) savings plans on these platforms. ETFs are known for their simplicity and variety in enabling investors to access a large pool of securities such as stocks and bonds at low costs. New research forecasts that the total volume invested in ETFs by private investors through digital platforms will more than treble to EUR 650 billion by 2028.³

This transformation, sparked in Germany less than a decade ago, has gained momentum, with interest in ETF-based savings plans spreading to more countries across the EU, and a younger generation of digital-savvy investors entering financial markets. According to a YouGov survey carried out for BlackRock, ETF investors in Europe are getting younger, as the 18–34 age group is set to replace those above 35 years old as the dominant cohort.⁴ One-third of the 32 million ETF savings plans expected to be executed monthly in Europe by 2028 – a fourfold increase from 2023 – is predicted to originate from countries outside Germany.⁵

These developments benefit Europe in several ways. It allows a broader population of lower-income individuals to invest small monthly amounts while diversifying and spreading their risk over time.

The impact extends beyond mere accessibility: these platforms predominantly serve as vehicles for long-term investments, particularly in areas such as retirement planning. Over 70% of investors leverage them to make long-term contributions to their retirement funds, according to numbers compiled by Trade Republic, a European digital platform.⁶

In a complex era marked by volatility and inflation, democratising access to financial markets can be key to securing the financial well-being of Europeans and to supporting Europe’s broader long-term economic resilience.

Disclaimer

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as of February 2024 and may change as subsequent conditions vary. There is no guarantee that any forecasts made will come to pass.