Although the oldest among them are still in their early 20s, Gen Z is already accustomed to being told how wrong they are about investing and how much they have to learn from their all-wise baby boomer grandparents, their Gen X parents and even their millennial older siblings.
While it’s true that Gen Z is young, green and learning as they go, they’re also breaking a lot of bad habits formed by those same older sets. In many cases, in fact, the youngest investors are doing an impressive job of navigating a rapidly evolving economic landscape in highly uncertain times.
Plenty of younger Gen Zers are about to enter the world of investing for the first time. Believe it or not, they might be better off listening not to the advice of the millennials, Gen Xers or boomers who came before, but to the wisdom of their older counterparts in Generation Z, who are getting it right far more often than they tend to get credit for.
Don’t Trust the System — But Use It to Your Advantage
Like every group of teens and young adults that came before, Gen Z has a rebellious streak that makes them suspicious of the establishment. But in their case, the machine they’re raging against sells stocks, mutual funds and ETFs.
“Culturally, there is an evident contempt from many in Gen Z towards the financial establishment,” said Brian DeChesare, a former investment banker and CEO of the financial platform Breaking Into Wall Street. “This has fostered an active ‘us versus them’ attitude in younger generations, and I think that’s a significant reason why many would rather seek advice from peers across social media and internet forums.”
If Gen Z is suspicious of a system where investment advice often comes from the same banks and corporations that sell the investments themselves, maybe it’s because that system isn’t working for them the way it did for their parents.
“According to a recent Credit Suisse report, Gen Z faces the threat of a low-return future,” said Ksenia Yudina, CFA, founder and CEO of education investment app UNest. “They are poised to earn a third less on stocks and bonds than previous generations, expecting annualized returns of about 2%.”
But Gen Z should take a cue from Gen Z — sitting on the sidelines is not the answer.
Avoid Exotic Investments and Stick With the Basics
Gen Z might be wary of Wall Street, but they also know that the stock market is the greatest wealth generation machine in history. Despite a persistent misconception that Gen Z shuns traditional securities in favor of newer assets like meme stocks, crypto and SPACs, their investments, generally speaking, are surprisingly mainstream.
A recent study from Motley Fool found that new investors are overwhelmingly flocking to old strategies. The survey revealed that 73% of Gen Zers are investing in stocks — a Bloomberg poll pegged it at a nearly identical 75% — which is far greater than the percentage of those who are gambling on risky, emerging trends like crypto and meme stocks.
Not only does Gen Z wisely stick with the basics, but they’re surprisingly prudent and cautious when they do play the stock market. The Motley Fool study revealed that Gen Z overwhelmingly chooses growth stocks, dividend stocks and value stocks, like the kind you’d expect to find in the diversified portfolios of seasoned and experienced investors.
“Unlike millennials, Gen Z is interested in ‘playing the game,’ so to speak, only on their terms,” said Giovanni Braghieri, CEO and co-founder of MyConsultingCoach. “The whole situation involving [GameStop], Robinhood, and the subreddit showed, without a doubt, that there are more than competent players lurking in various subreddits and Discord groups.”
Put Your Money Where Your Morals Are
Millennials are credited with starting the trend toward sustainable investing. The generation above Gen Z helped to put more than $50 billion into ESG (environmental/social/governance) funds in 2020 compared to less than $5 billion just five years ago, according to CNBC.
But Gen Z has taken up that mantle and made it all their own. And that philosophy — capitalism with a conscience — just might be the biggest and best lesson that Gen Z has to learn from Gen Z.
According to a Bloomberg study, the majority of Gen Zers report that their investment strategy concentrates on on “companies with a purpose.”
“This generation places an emphasis on supporting companies and brands that are making an impact in the world, and this extends to their approach to investing their money,” said Alice P. Neuhauser, CFO and treasurer of Seismic Capital Company. “Young investors are seeking opportunities to support diverse, inclusive businesses with the potential to make a positive and long-lasting impact in society.”
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Last updated: Oct. 26, 2021