As the internet and social media influence on young investors grows there are concerns that the fundamentals of investing are being ignored.

Younger people are taking to the markets in a big way, but their investment aims and approaches are sounding loud alarm bells in the industry.

Earlier this year, with furlough-enforced time on their hands, they were prey to messages and adverts on social media promising ‘get rich quick’ opportunities. These ranged from hyper-growth tech stocks, such as Tesla, to foreign exchange trading and exposure to cryptocurrencies, such as bitcoin. Another recent market craze has been around ‘meme stocks’, such as GameStop, BlackBerry and AMC Entertainment, which go viral online and build a cult-like following of retail traders who push the share price through the roof.

In some ways, younger generations thinking about investing earlier is to be welcomed. But the fear is that they are focusing on quick returns from high-risk opportunities, effectively gambling with money they cannot afford to lose, for reasons that have little to do with prudence or long-term financial security.

A survey looking at investment culture, carried out by Nationwide Building Society, found evidence that Gen Z savers are much more willing to take high risks with their money than the wider public.

Almost 40% of Gen Z classed their investment risk appetite as high, compared with 12% across the wider population. They also expect swift results, with strong returns within one or two years; almost two-thirds of Gen Z respondents were not interested in investments that involved locking their money away for as long as five years.

Short-termism and opportunism were highlighted also by a Barclays Smart Investor study of young investors in July. It found half of those aged 18-24 plan to only invest money for two to five years. Over a fifth say they are investing to ‘take advantage of the market’, and 16% plan to ‘play the markets’ to make fast profits.

Another key issue is the role of social media in fueling competition between younger investors. The Nationwide survey found the most common reason for getting started among Gen Z was seeing the success of peers.

The FCA has been rattled enough by these trends to undertake its own research, which threw out some pretty stark findings.

Conventional ‘functional’ reasons for investing, such as building a nest egg for a house deposit or other big expenses, simply don’t resonate with the younger crowd - perhaps because the prospect of getting onto the housing ladder seems so remote to so many. The FCA research found almost 40% did not list a single functional aim in their top three reasons for investing; instead, they were investing for the novelty value or the challenge of the exercise.

The research also identified the powerful role of competition, with three-quarters of investors under 40 investing in high-risk products saying they were driven by rivalry with people they know, or the desire to beat their own past performance. Additionally, almost 60% say they are making decisions shaped by social media hype.

The upshot is that the regulator has launched an innovative £11m online and social-media-based ‘InvestSmart’ campaign to help investors tempted by high-risk products make better-informed decisions.

Building a reliable store of wealth – one that will see you right when times are difficult and provide a comfortable lifestyle in decades to come – is a slow process, and it’s important to recognise it as such. The guidance below serves as a good starting point for anyone dipping a toe in the investment waters for the first time:

7 sage investing tips for younger investors

  • Put in place a cash cushion for emergencies, so you don’t have to sell investments at short notice.
  • Diversification is key. Spread your cash across geographies, asset classes and company sizes: when one investment is struggling, another may be booming.
  • Funds and investment trusts can help provide diversification that would be very hard to achieve by investing in individual equities. A professional manager can add value through canny stock-picking.
  • Attempting to ‘time’ the market is a fool’s game: research shows that over the long term, it is more rewarding to remain invested through market cycles than to dip in and out.
  • Whatever you’re investing in, understand how it works and how your money is at risk. Do your homework.
  • There is a great deal of useful information online, but there are also a lot of charlatans and professional scammers operating. Be wary and selective.
  • If you want to experiment with higher-risk investments, ring-fence a small amount of ‘speculative cash’ and take profits regularly. Don’t be tempted to add to your initial investment just because it has performed strongly.



Gen-Z lured by Wolf of Wall Street as many invest in search of a quick return - Nationwide Building Society

The rise of the Gen Z investor - Barclays

FCA warns that younger investors are taking on big financial risks - Financial Conduct Authority (FCA)

Young investors driven by competition and hype - Financial Conduct Authority (FCA)


Important Information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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