Share this
Young money:
How Gen Z investors will shape future investment markets
Koko Lotharukpong
Associate Consultant
Recently, I had the horrible misfortune of dropping my phone onto the tube tracks during my commute to work. At the risk of sounding dramatic, being phone-less made me feel completely disconnected – not just from my friends and social media, but also from my financial tools.
It made me realise how deeply integrated mobile technology is with daily life, especially for young people like myself. My generation (Gen Z, typically categorised as those born between the late 1990s and early 2010s) have grown up with the internet and social media at our fingertips. As a result, we now expect to be able to manage all aspects of life through our phones.
Given this, it’s no surprise that Gen Zers entering the workforce and accumulating wealth for the first time have approached their finances through this lens. This digital-first mindset has shaped several key investment trends that are unique to this cohort.
The Gen Z investors are already redefining the investment landscape with their digital-first perspective, approach to risk, and responsible investment expectations.
The investment game: all in!
Firstly, Gen Z investors are much more likely to access the stock market through mobile apps such as Robinhood, Freetrade, and Trading 212. The rise of investment apps with no upfront management or commission costs have made opening an investment account much more accessible. Increased availability of fractional share ownership has democratised investing even further, enabling cash-strapped young adults to start investing with as little as £1.
While ease of investing has lowered barriers to entry, it has also created a double-edged sword. These apps’ user-friendly interfaces and game-like features have attracted a broader audience and encouraged more market participation. As a result, more young adults than ever are poised to benefit from long-term investing in the stock market.
However, this accessibility can lead some Gen Z investors to view investing as a game with the potential for large payoffs, attracting them primarily to high-risk opportunities, or short-term trading, seeing large potential returns.
The rise of digital assets
This willingness to take on greater risk to achieve better returns has meant that Gen Z investors are, on the whole, more open to exploring non-traditional investments: one in four Gen Z investors own some form of cryptocurrency and one in ten own Non-Fungible Tokens (NFTs). These investors expect cryptocurrency will deliver better investment returns over the next decade compared to more traditional investments.
Clearly they are being convinced by recent historic returns, in spite of cryptocurrency’s notorious volatility: £100 converted into Bitcoin at the end of 2013 would be worth £5,690 ten years later. This beats the S&P 500 (from £100 to £260) over the same time period.
They’re also willing to put their money to the test – the iShares Bitcoin Trust ETF, one of the biggest cryptocurrency ETFs, has reached almost $21 billion in net assets since its launch less than a year ago in January 2024. Time will tell if digital assets form part of other generations’ standard investment portfolios.
Regardless, it’s certainly clear that Gen Z investors are happy to take advantage of their long investment horizons and take on more risk. Whether they fully understand these risks is another matter.
Stranger danger: online misinformation by finance influencers
Top sources of information used to learn about investing and financial topics, by generation (%)
Source: CFA Institute
Gen Z investors are more likely to turn to social media as their primary source of financial information and investment advice. A study by the CFA Institute found that social media ranks as the top source of financial information for Gen Z investors, followed by websites and family members.
This reliance on social media means that Gen Zers are often receiving financial advice from unregulated ‘financial influencers’. Given many of these content creators depend on views for their livelihood, this can lead to sensationalised content that prioritises attention over accuracy.
To use Graham Stephan (one of the most popular personal finance YouTube personalities) as an example: a video titled “All in on DogeCoin” (a “meme” cryptocurrency) has 1 million views, whereas a more informative video on “Compound interest: How to turn $1 into $10” has only reached 300,000 views. All this suggests that information gained through social media can be misleading.
Interestingly, the same study indicates that Gen Z investors are somewhat aware of this – although learning through social media was most popular amongst those surveyed, it was one of the least trusted sources of information.
Social media may seem relatively harmless, but we’ve already seen how this can affect financial markets in extreme ways as demonstrated by the GameStop ‘meme stock’ saga led by r/WallStreetBets.
Individual stock ownership and individual accountability
The allure of investing in individual stocks isn’t limited to just GameStop. Gen Z investors are nearly four times more likely to own stocks than ETFs and twice as likely compared to mutual funds. This unconventional approach may also come from Gen Z’s values-based approach to investments.
A 2022 Stanford article found that 70% of Millennials and Gen Zs surveyed were concerned about environmental issues, 65% about social issues, and 65% about governance issues. One in five thought that the investment platform holding their assets should use its size and power to influence Environmental, Social, and Governance (ESG) practices, even if doing so decreased the value of their investments.
This may be part of the reason why Gen Z prefers to hold individual stocks – owning the stock could be a way to signal support for a company and its practices.
This is only the beginning
Most Gen Zers have yet to start investing due to income constraints. After all, twentysomethings aren’t usually known for their wealth. However, the ones that do invest are already redefining the investment landscape with their digital-first perspective, approach to risk, and responsible investment expectations. We can only expect their influence on financial markets to grow as they mature financially and become an increasing share of the investing population.
What does this mean for institutional investors?
I’d get ready for increased volatility in markets as ‘vibes’-based retail investors make up a larger share of investors, an increasingly open-minded view of what is considered an investment asset class, and heightened ESG expectations for publicly listed companies.
