Ella Gupta made her first investment when she was 10 years old. With the help of her parents, she took half of the profits from her bracelet-making business and invested in the stock market. At age 14, she opened a Roth IRA, after starting her first job cleaning dental instruments. Now, at 17, Gupta is facing her first bear market.
As the stock market froths, there is also an opportunity to buy shares of quality companies on sale. “For younger investors, a market correction or even a bear market can be beneficial to their long-term savings, if they have the discipline to hang on and the fortitude to buy more when markets pull back,” says Greg McBride, Bankrate’s chief financial analyst.
US stocks have not suffered a prolonged bear market since the financial crisis of 2008-2009. While the generation of investors that has since come of age may lack the experience of their elders, members of today’s bear market have advantages that previous generations could not imagine. Chief among them, perhaps, is unrestricted access to information via the Internet and the ability to find and spread it almost instantly. The proliferation of online brokerage and investment websites has not only democratized investing; it has enabled new investors, mostly young ones, to create communities and share knowledge in new ways.
Gupta invested the money she earned in making and selling Rainbow Loom bracelets.
Photography by Kate Medley
More than half of Gen Z adults, those between the ages of 18 and 25, are already investorswith 26% invested in individual stocks, according to a 2022 Investopedia Financial Literacy Survey. This would make them more financially active than any generation before their age, according to Investopedia. Members of Generation Z are also the first generation to be born into a world where the use of social networks is the norm, meaning that your investment thinking is heavily influenced by your peers.
“Peer learning is very powerful,” says Gupta, who has also written a book for his peers on personal finance and investing.
Gen Z respondents say they learned about investing online, with just under half saying they learned on YouTube or through other videos. About a third credited TikTok for their newfound knowledge. For much of the past two years, the investment advice of social media strategists has paid off. A analysis from 2006 to 2020 of more than 30,000 stocks worldwide found that stocks with the most positive media sentiment outperformed those with the most negative sentiment, according to market sentiment aggregator MarketPsych.
A bear market However, you can point out the dangers of groupthink, whether on Wall Street or in the digital world. That’s something members of Gen Z are also learning as the stock crater of memes, cryptocurrency crashes and other assets amplified by online investment influencers fall back to earth. Many stocks favored last year on online forums like Reddit have since dropped by double digits.
When she turned 14, Gupta used part of her earnings to buy a mother-of-pearl necklace.
Photography by Kate Medley
“In a bull market, everyone looks like a genius because they say, ‘I’m making incredible profits on everything,'” says Vivian Tu, a financial education content creator on TikTok. “And now, by definition, we have reached a bear market. People who weren’t weighing the cons against the pros are going to feel it now, and it’s a scary time if you were overweight in risky asset classes.”
Even conservative investors have suffered losses this year, with the
S&P 500
down about 17%. Surveys suggest that newer investors have been much quicker to sell than their more experienced seniors, just the opposite, in many cases, of what they should be doing. A Bankrate survey found that 73% of Gen Z investors were actively trading this year, compared to just 28% of Gen X investors, ages 42-57, and 25% of baby boomers .
Some experts worry that social media may be to blame for encouraging bad investment behavior. “A lot of things on social media are great advice; it’s just not nuanced,” says Anne Lester, former director of retirement for
JPMorgan
.
“It has to be short and digestible, so some of the nuance is lost.”
But concerns about Gen-Z’s risky business behavior may also be overblown. There is reason to believe that this generation will be more financially conservative than their predecessors, having seen their parents lose their jobs during the financial crisis and disruption caused by the covid pandemic, according to Wells Fargo Advisors.
Gupta says he’s not overly concerned about the prospect of a bear market because his investment strategy revolves around dollar cost averaging, or investing a fixed dollar amount on a regular basis. He also researches any company whose stock he is buying, studying financial statements, trading conditions, and valuations.
“Every time I buy a stock, I do so with the intention of holding it for the long term,” he says.
Many novice investors seem to have sharpened their pencils in recent months, says Zoë Barry, CEO of social trading platform Zingeroo. Of all the clients trading on the Zingeroo platform, Gen-Z investor activity most closely mirrored the recommendations of professional research firms, she says, noting that few are still buying the meme stock hype. .
You, the TikTok content creator, agree. She has 1.5 million followers on her TikTok account, @yourrichbff, and says that with recession fears rising, her followers are restless and bombard her with questions about how the current macroeconomic environment will affect them.
“People talk about this like we’re about to move into our bunkers for three years,” she says.
Not so, he assures them.
Write to Sabrina Escobar at [email protected]