A new survey has revealed that Gen Z is displaying more volatility than other generations when it comes to stock market investments, fueled by the prevailing conditions of rising interest rates and inflation.
The Federal Reserve’s efforts to curb inflation by raising interest rates – eleven times since March 2022 with the aim of bringing inflation down to 2% – have driven nearly 90% of young investors into the stock market this year, as revealed by the Bankrate survey. Gen Z stands out with 87% actively participating in the market in 2023, compared to 68% of millennials (ages 27 to 42). Gen X and baby boomers trail far behind at 38% and 35%, respectively, with the overall American investor average resting at 52%. This discrepancy raises a serious question: Is Gen Z’s inclination for volatility a sound strategy or a potential downfall?
James Royal, a Bankrate analyst, provides a compelling answer, cautioning that “if younger investors trade in and out of the market, that’s almost guaranteed to underperform.”
“If younger investors trade in and out of the market, that’s almost guaranteed to underperform,” CNBC quoted Royal as saying.
The generation’s tendency for frequent market activity might offer short-term gains but poses a substantial risk to long-term financial growth. Despite this volatility, the survey highlights an intriguing trend: Gen Z and millennials express a stronger intent to increase their stock investments in the current year, possibly banking on youthful exuberance to outweigh the turbulence.
“Despite a bias toward action rather than inaction on the stock investing front, both Gen Z and millennial investors indicate a much higher intent to increase their stock investments this year,” Greg McBride, Bankrate’s chief financial analyst, is quoted as saying.
The survey’s findings prompt reflection on investment strategy. The concept of passive investing emerges as a signal of stability in a market increasingly facing turbulence. Passive investing involves purchasing diversified index funds and holding onto them for the long haul, according to NerdWallet. This strategy differs from the active approach of trying to time and outperform the market. While the stock market’s volatile nature can be unsettling, sticking to a passive strategy offers the probability of consistent long-term returns, as emphasized by Bankrate. Moreover, it also reduces the risk of incurring substantial tax obligations and missing out on the market’s most significant upswings.
Bankrate reported it surveyed 3,676 adults – 1,665 had investment or retirement accounts.
