Generation Z – Savvy investors or impatient gamblers?

Generation Z are making their mark on the stock market and in normal Gen Z style, they’re doing things differently. Market analysts will certainly look back at the Coronavirus Pandemic as a turning point in how people interact with financial markets. This blog explores what assets Gen Z investors are buying, how they’re buying them and with what funds. This blog will explore some of the success stories of Gen Z investors but also worrying new habits which are emerging.

Market access & barriers to entry

The days of speaking with your wall street (or equivalent) stockbroker to buy and sell stocks are largely over, especially for Gen Z. The award-winning film the Wolf of Wall Street educated younger generations on several dangers associated with investing. The modern world of stock market investing has cut the middle man in many ways as we see the rise of fintech (financial technology).

The internet has provided two powerful tools for investors, firstly, an endless supply of information and learning materials, allowing for younger generations to engulf themselves in self-taught investing courses. The second is market access in the form of fintech. Trading/investing apps have cleared away historic barriers to entry that previously existed.

The rhetoric that you need a considerable amount of money to invest has also vanished. You can gain access to markets with pocket change by using fintech apps, many of which allow investors to start with as little as $5.

deVere Group offers a range of Fintech apps including, the Catalyst app which allows investors to buy into award-winning mutual funds and the deVere Crypto, which does what it says on the tin. These apps allow investors to open an account with as little as $50/£50.

Surplus cash & the perfect storm

2020 was a difficult financial year for many people, but for others, it was a year where their bank accounts filled up with surplus cash from wages or stimulus packages. Expenditure across the board dropped considerably as people were ordered to stay at home, which in turn created a cash surplus.

After the 2008 financial crisis, many people appreciated the stock market strategy of  “buying the dip”. Indeed, one of the richest men on earth, Warren Buffet, was quoted as saying ‘When there’s blood in the streets, you buy.’ Meaning when people are frantically selling assets, that’s the time to strike.

Equip with market access in the form of fintech, ever-increasing levels of financial knowledge & an unusual amount of surplus cash, Generation Z was unleashed on the financial markets. CNBC’s Momentive Survey found that 1/3 of survived American’s invested part of their stimulus payments from employers/government.

Couple this with a collection of older generations in similar positions playing the same card, albeit, generally using different market access tools, the markets flew. Across the board, in Q2/Q3/Q4 2020 it was harder to lose money than make money in the stock markets. In fact, since the COVID lows, the S&P 500 has surged 105%. Make no mistake, that is truly staggering.

March 19th 2020, a couple of days after the COVID market crash, we urged people to make the most of a “once in a generational opportunity”, within this blog.

So, what are Generation Z investors buying?

In a recent survey conducted by CNBC, it was found 15% invested in individual stocks, 11% purchased cryptocurrency, 9% invested in mutual funds and 8% bought exchange-traded funds.

Individual stocks

Began in 2019 and earlier 7%

Investors who began in 2020 15%

Crypto

Began in 2019 and earlier 3%

Investors who began in 2020 10%

Are Generation Z investors taking too much risk?

Conventional investing wisdom dictates that younger people should take on greater levels of investment risk in search of greater rewards. This is advisable as they have greater amounts of time in the market to ride out volatility.

Generation Z is certainly taking on high levels of risk, as shown by their habits of buying into direct equities and cryptocurrencies. Their asset allocation isn’t however the matter in question. It has more to do with the ways in which they are funding these investments and the instruments they are using which could prove problematic. One such issue is younger generations borrowing money to buy into cyrpto currencies in the hope of growing your portfolio at a greater rate than your repayments.

We are also seeing an increase in stop losses, this is where an investor places a price at which their investment auto sells once an asset reaches a certain price. This has added greatly to the volatility of these assets as corrections can compound as a drop in price can trigger stop losses which can snowball the fall in price. In crypto’s recent fall, many attributed the sudden drop in price to stop losses.

Summary 

There is certainly a lot of change taking place in the world of investing. Fintech apps are now at the forefront of the industry. Anyone and everyone can gain access to financial markets using such tools and this has changed the dynamic considerably. Younger generations are taking on greater levels of risk by using stimulus money and borrowed money to invest. The bull run in equity markets has continued to attract more and more investors as markets continue to rise, above perhaps their real value. Is this because interest rates are so low? Is it perhaps because people are bored or conventional ways to accumulate wealth? Will young investors get stung by a potential market correction? Or it is a ‘new normal, with the elevated prices set to remain. Time will tell, but one thing is for sure, broad-spectrum market access for coming generations is here to stay.

 

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