Breaking News: Ex- Cortina watch employee Jerry Ee, who made away with S$8m worth of watches from Cortina outlet, surrenders himself at S’pore embassy in Bangkok.
Alex Lew (with contribution by Leong Sze Hian)
"The Central Depository (CDP) lowered the age limit to open an account, which is needed to trade in shares here, from 21 to 18 last Monday." (The New Paper)
At the age of 18, surely the investor is not an experienced trader, much less a qualified fund manager. In this light, the young trader is dealing with unnecessary financial risks.
Stocks and shares are wealth accumulation tools that assist to grow the wealth of the individual within a well-diversified portfolio of other financial instruments. Some of these other instruments are bonds, real estate funds, hedge funds and exchange traded funds. Typically, an investor does due diligence before entering a buy or sell position for a particular stock. On average, only 15% of fund managers are able to beat the S&P500 index in a given year.
Moreover, trading stocks will require the investor to put in a significant amount of time to monitor his position. It is also important to know the fundamentals of the companies that these young investors are buying in. Some of these information include: the business model of the company, forecasts of sales, required rates of return, cost structure and nature of the industry that the company operates in. I doubt that young investors have enough time to study and monitor their investments. Although adults may face the same problem, adults can afford to pay for research done by professional equity researchers. Also, adults should be able to understand the risk and return structure of their investments better.
More importantly, many young investors at the age of 18 are still living off pocket money from their parents. Is it fair for the parents to undertake the risk of their children's losses on the stock market? Young adults are not taught the skills of investing in secondary schools or junior colleges. I think it is better to encourage youngsters to start investing, at least, when they start earning their own salaries.
I foresee that many young investors who start at the age of 18 will be distracted by the stock market. Their lack of experience and access to vital information will put them at a disadvantage. Will these young investors see stock trading as a gamble instead of long term investments?
Finally, with a CDP account, a young investor may have access to futures and warrants which are highly leveraged instruments. This will increase the financial risk of the young investors.
Thus, I would suggest that the age limit to open an account be increased.
If we are trying to protect vulnerable investors (elderly and low education) after the Minibonds saga, why have we recently allowed university students to have credit cards with interest up to 28 per cent per annum, lowered the income requirement for unsecured credit from $30,000 to $20,000 with the existing 18 per cent per annum interest cap removed, and now allowing 18 year-olds to play the stock market?
Aren't the young vulnerable too?