The rise of the Gen Z investor

16 July 2021

4 minute read

More youngsters are investing – but are they taking too much risk?

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • How more Gen-Zers are starting to invest
  • Concerns about taking too much risk
  • How to create a balanced portfolio to spread risk.

The stock market is all the rage for so-called Gen-Zers who have started investing their savings in the last year or so. Like many other age groups, they have used the extra time spent at home to get around to investing for their future.

While dedicating time to building up a meaningful investment pot is a positive step there is much evidence to show that Gen Z investors are taking a very risky approach, which could end in tears.

A new study by Barclays Smart Investor reveals1 that many Gen-Zers are looking to “get rich quick” by investing for the short-term.

Nearly half (49%) of those aged 18-24 plan to only invest money for 2-5 years. Over a fifth (21%) say they are investing to ‘take advantage of the market’ and 16% plan to ‘play the markets’ to make fast profits.

The last year has seen younger generations pick up investing habits that are traditionally viewed as unfavourable – a quarter (25%) of Gen Z investors admit to checking their portfolio more often, a fifth (17%) are placing trades more frequently and 14% of young investors admit to making more speculative investments, now compared to early 2020.

Youngsters taking too much risk is a worry for the Financial Conduct Authority, which has expressed concern about the high-risk investment strategies taken up2.

It said there is evidence that higher risk products, may not always be suitable for their needs as nearly two thirds (59%) claim that a significant investment loss would have a fundamental impact on their current or future lifestyle.

Rob Smith, Head of Behavioural Finance at Barclays Wealth, said: “It’s great to see an increase in young people interested in investing, but it’s worrying to hear that so many Gen-Zers are looking for a short-term win rather than investing through a balanced portfolio.

“Just as markets rise, so can they fall and by investing money that you may need for the short-term, you increase the chance that you’ll be forced to sell at a less favourable point in the market and end up with a loss – potentially putting you off investing again. This is why one of the golden rules to investing is to try and commit for at least 5 years – to give yourself the best chance of riding out any dips in the market.

“We hear that younger investors are drawn to investing for the excitement of the markets – but the highs and lows can be incredibly stressful if they come around too often.”

The key for investors of any age is to build a balanced portfolio. Here are five ways to help do so:

1. Spread risk by investing in funds

Instead of buying shares in individual companies it’s possible to invest money in funds which offer the opportunity to invest in shares of lots of different companies. Money is pooled with that of other investors and invested by a fund manager in companies that have the potential to generate returns.

2. Learn the art of diversification

Diversification – spreading your money across various companies, regions and industries - is crucial to avoid letting one area of investing dominate your portfolio. Relying on one type of investment too heavily – or a narrow range of investments – won’t necessarily protect your portfolio against the risk of losing money.

3. Choose research tools wisely

The FCA has highlighted that this newer group of self-investors are more reliant on contemporary media such as YouTube and social media for tips and news.

It’s important to rely on information from a trusted brand. Barclays offers a huge range of investment research tools. The Barclays Funds List is also a great place to start looking for ideas. Our list is made up of a number of funds from each of the investment sectors we believe are key for building a diversified portfolio.

Here you can read an overview of a fund, how the manager runs it, a little about the company behind the fund and crucially, why we like it.

4. Invest regularly

Monthly payments into your funds will help you to smooth out the highs and lows in share prices. When they go up, the value of your shares rise and when they go down, your next contribution buys more. Though the reverse is true that when markets go up your payments buy fewer shares and when they fall the value of your fund is lower.

5. Seek help with the balancing act

If you’re ready to invest but need some help in choosing the right mix of funds, you might want to consider the Barclays Ready-made Investments (RMI). We offer five ready-made investment funds created and monitored by our experts, so you don’t need to make any decisions on balancing your portfolio.

The range of investments invest in passive funds across a range of asset classes and regions, offering a globally diversified one-stop solution for investors.

They offer five differing levels of risk – all you do is choose the one you are most comfortable with.

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