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Here We Go Again: Smoothed Return Investments for the TikTok Generation

Writer's picture: Steve ConleySteve Conley

An insurance company has released a survey suggesting that young adults have developed a taste for smoothed return investments. And, naturally, this means dusting off the old with-profits bonds, dressing them up in digital-age garb, and trotting them out for another spin around the block. Because clearly, what young investors really want isn’t innovation, transparency, or long-term growth potential—but a shiny, low-volatility wrapper on yesterday’s mediocre ideas.


The pitch is painfully predictable. Smoothed volatility, we’re told, offers a more palatable investment option for cautious younger generations scarred by “decades of economic uncertainty.” From the 2008 financial crisis to the Covid-19 pandemic and the ever-looming spectre of Brexit, the financial services industry is quick to remind us that millennials and Gen Z are just too risk-averse for good, old-fashioned market volatility. Never mind the reality: market volatility doesn’t equate to long-term investment risk. Quite the opposite, in fact.


Let’s set the record straight.


Volatility Isn’t Risk—It’s Opportunity

For young investors with decades ahead of them, high volatility isn’t the bogeyman. In the long term, it’s a feature, not a bug. Higher-volatility investments—think equities—correlate with a lower risk of real-term shortfall over the decades, provided investors stay the course. The peaks and troughs of a volatile market smooth out over time, delivering superior returns to those willing to ride the wave.


Contrast that with low-volatility, “smoothed” investments. These are often packed with hidden fees, opaque structures, and suboptimal returns that quietly erode wealth. A guaranteed way to turn the financial goals of young investors into a mirage on the horizon. A smoothed product is like a lukewarm cup of tea: comforting, perhaps, but utterly ineffective when the goal is waking up and getting ahead.


Smoothed Funds: Risk-Free? Not So Fast

The industry’s rhetoric around smoothed products conveniently sidesteps a critical truth: these are high-risk products for the long term. Not because they fluctuate wildly—quite the opposite—but because they fail to keep pace with inflation and the growth potential of equities.


Yet here we are, again, flogging “balanced” funds as the panacea for young investors with supposedly fragile risk appetites. The pitch is bolstered by a survey showing that over a third of young people would consider an investment product that delivers growth while smoothing out fluctuations. And why wouldn’t they? It sounds appealing to someone who’s never been taught that volatility is their friend when the horizon is measured in decades.


But let’s not kid ourselves. The appeal of smoothed returns isn’t about meeting young people’s needs. It’s about creating products that are easy to sell, profitable for providers, and buried under a veneer of security to assuage misplaced fears.


A Failure of Financial Literacy

It’s worth highlighting that 39% of 18-34-year-olds cite a lack of understanding as a barrier to investing. That’s the real problem. It’s not their risk appetite; it’s their financial literacy. And instead of addressing this with meaningful education, the industry responds by churning out “innovative” products designed to capitalise on their fears rather than dispel them.


Financial service providers are quick to champion the idea of educating young investors, but the execution often falls flat. Where’s the focus on the basics of long-term investing? The power of compounding? The historical performance of equities versus cash or low-volatility products? Instead, the messaging reinforces fear of volatility while offering band-aid solutions that are anything but a cure.


Missing the Mark on Modern Investors

And what about crypto? NFTs? TikTok-finfluenced investment trends? For better or worse, these are the domains young people actually engage with—not because they’re safe but because they’re accessible, exciting, and sometimes lucrative.


The notion that smoothed products will resonate with a generation raised on fast-paced, high-stakes digital assets feels wildly out of touch. If financial services providers want to stay relevant, they might consider addressing the platforms, trends, and behaviours that already dominate young investors’ lives rather than trying to shoehorn them into tired solutions.


The Real Risk

The real risk here isn’t that young people are too cautious to invest—it’s that they’ll be lured into the trap of low-volatility products that quietly sacrifice their long-term financial health.


If the financial services industry truly wants to help, it’s time to ditch the patronising, fear-based narrative. Teach young people how markets work. Show them the data. Help them understand that volatility isn’t the enemy—and that smoothed products might just be the wolf in sheep’s clothing.


Because the last thing the next generation needs is another reheated idea dressed up as innovation. They deserve better. And they’re smart enough to demand it.

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