The recent GameStop stock saga raised many questions about modern trading and put a spotlight on the young investors who drove the Reddit rebellion.
To find out more about who these young stock rockers are and what drives their investment decisions, MagnifyMoney surveyed more than 1,500 Gen Zers and millennials in late January.
We found that almost 6 in 10 Gen Z and millennial investors (age 40 and younger) are members of investment communities or forums, such as Reddit, and nearly half have turned to social media in the past month for investing research. Here’s what else we learned.
Online is where it’s at when it comes to young people looking for investment information. Our survey found that 33% of Gen Z (ages 18 to 24) and millennial (ages 25 to 40) investors belong to one online investment community or forum where people discuss investing, and another 23% belong to more than one. That’s nearly 60% of investors 40 and younger.
Gen Z men who invest are slightly more likely than millennial men to belong to a single investment community or forum (40% versus 38%). Gen Z women who invest, however, are the most likely to belong to multiple communities or forums (32%), versus:
So, is this a good thing? That depends, said Tendayi Kapfidze, LendingTree chief economist.
“It’s great that these communities are introducing a lot of people to investing, which is one of the best ways to build wealth over a lifetime,” he said. “A concern is that some are leading to relatively short-term trading concentrated in a few stocks with hopes of getting rich quick.”
This may seem good in a bull market, he said, but it’s risky and can lead to significant losses if the market turns. Most people should have a long-term perspective with a balanced and diversified portfolio, he added.
More than a quarter of Gen Zers and millennials don’t have any investment accounts at all. In fact, 40% of millennial women and 33% of Gen Z women reported that they don’t have one.
Still, that means the vast majority of people in these age groups — 72% of Gen Zers and 73% of millennials — are investing their money. Where are they keeping those investment dollars?
Health savings accounts are the most popular with Gen Z women (23%), while retirement plans such as 401(k)s or individual retirement accounts (IRAs) are the most popular choice of millennial women (31%). Meanwhile, Gen Z men favor apps like Robinhood or Stash that let them buy stocks (35%), while millennial men equally favor apps and retirement plans (43%).
In general — mixing Gen Z and millennial investors regardless of age or gender — 31% keep their funds in a retirement plan and 29% use an app. The retirement figure concerns Kapfidze.
“If you have access to a retirement account at work, it’s best to max that out before opening a regular brokerage account,” he said. “The tax benefits can be substantial. An IRA is an option for those without workplace retirement benefits to also access tax breaks.”
Social media isn’t all selfies and trendy dance routines these days. In fact, there’s a surprising amount of investing information on it, and — perhaps not so surprisingly — that’s where young investors are turning for their investment information.
While only 27% have sought advice from a financial advisor, 41% have gone to YouTube for investment advice. Talking to friends and family (29%), TikTok (24%) and Instagram (21%) were other frequently-reported sources of information among young investors. However, despite its overwhelming presence in recent news cycles, just 13% reported using Reddit as a source for investment information.
Breaking down by age ranges, about 41% of Gen Zers reported turning to TikTok for investment information in the past month, versus 15% of millennials.
Gen Zers were also more likely to turn to Instagram and YouTube than millennials, while millennials turned more often to financial advisors, books and magazines, newspapers and Facebook groups.
The fact that young investors are finding investment advice online isn’t a bad thing, but they should be smart about their sources. Be cautious and follow more than one source, Kapfidze said.
Investors are starting young these days. In fact, 75% of Gen Z investors said they began investing before they could even have a legal alcohol drink. Of course, seeing as how the oldest members of Gen Z are just 24, most are younger than the legal drinking age by default, but it’s still noteworthy just how many are starting at such a young age.
In contrast, only 26% of millennials started investing before age 21. In fact, the largest majority of millennials (28%) started investing between 21 and 24, while 21% waited until they were 30 or older.
As for what spurred them to start investing, it seems many young investors have taken parental advice to heart. When asked what influenced their choice to start investing, the largest majority of young investors said it was their parents’ encouragement. (See, they do listen sometimes!)
It’s interesting to note, however, that while parents are often the reason young investors got into investing, they then turn to other sources (like social media and friends and family) to learn about investing.
The younger the investors are, the more likely they were to take their parents’ advice to start investing, too. In fact, 40% of Gen Zers said their choice to start investing was based on their parents’ encouragement, while 33% of millennials said the same. This may be due to a larger percentage of this generation still living at home, but it also serves as a reminder to parents that good financial habits are lessons worth teaching.
Gen Zers were also more likely to start investing after reading about it on social media (18%) than millennials (15%), while millennials were more likely than Gen Zers to start investing because they were offered a retirement plan at work (23% versus 11%).
These young eyes aren’t typically on the long-term prize of retirement savings when it comes to their investment goals, though.
In fact, just 36% of young investors said they plan to use their investments to secure their golden years. Instead, they plan to use their funds to make more investments or to make a big purchase, like a house or a car.
Millennial investors are a bit more likely to focus on the long term, with 42% saying they’ll use their investments for retirement, versus 25% of Gen Z investors. Gen Z investors are more likely to use the money to pay for a major purchase (27%) than millennials (14%). In addition, 9% of all young investors said they haven’t really thought about how they’re going to use their investment funds.
While retirement can seem far off, Kapfidze urges young investors to develop a holistic plan that targets both current expenditures and retirement. In general, though, he said it’s great to see investors starting young.
“The sooner you start, the better your chances of accumulating significant assets,” he said. “Even if you start small, the most important thing is to participate in the market. Understand your risk tolerance and let that guide your choices.”
Many young investors have already started dipping into their accounts, with 47% saying they’ve withdrawn funds once or twice and another 17% saying they’ve done so many times.
In general, women were less likely to withdraw funds from their investment accounts than men, with 43% of millennial women and 36% of Gen Z women reporting they’ve never made a withdrawal, versus 33% of millennial men and 29% of Gen Z men.
As for why they’ve withdrawn the funds, paying off debt tops the list.
Purchasing a car was a close second. In fact, Gen Z investors were slightly more likely to buy a car than pay off debt with their funds (31% versus 29%).
These young investors aren’t sitting by passively waiting for their investments to work for them — instead, they’re working them frequently. Twenty-two percent reported trading stocks at least once a week, with 11% of them trading at least multiple times a week.
That doesn’t mean they’re investing huge amounts, though. In fact, the majority of young investors (71%) invest less than $500 a month.
There are a few investing more, with 10% reporting they invest $1,000 or more. Millennial men lead the way with larger investments, with 14% investing at least a grand a month, compared with:
As for deciding how to invest those dollars, nearly half of young investors make their investing decisions themselves, while 37% use a financial advisor and 17% use a robo-advisor. Millennial investors are slightly more likely to use a financial advisor (38% versus 34%), while Gen Zers are more likely to use a robo-advisor (22% versus 15%).
While it’s great that these young DIY investors feel confident making their own decisions, many likely could see greater returns with the help of a financial advisor or a robo-advisor. Some may have the time and knowledge to adequately manage their investments now, but as their lives and needs change, most will likely benefit more by employing a financial advisor.
Advisors can help clients diversify their funds, plan for overall financial goals, mitigate risk and streamline the whole process. While DIY is great when it comes to brewing your own beer or building a bookcase, one’s financial future is typically best built with the help of a professional.
MagnifyMoney commissioned Qualtrics to field an online survey of 1,536 Americans ages 18 to 40, conducted Jan. 22-26, 2021. The survey was administered using a non-probability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.
We defined generations as the following ages in 2021:
The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.