The bear market brought ‘fear and uncertainty’ to Gen Z. How are they coping?

Ella Gupta made her first investment when she was 10. With the help of her parents, she took half of her profits from her bangle business and invested in the stock market. At 14, she opened a Roth IRA after starting her first job cleaning dental instruments. Now, at 17, Gupta is facing his first bear market.

As the foam comes out of the stock market, there is also an opportunity to buy shares of quality companies on sale.” For younger investors, a market correction or even a bear market can benefit your long-term nest egg if they have the discipline to endure and the grit to buy more when markets are in retreat,” said Greg McBride, chief financial analyst at Bankrate.

U.S. stocks haven’t suffered a prolonged bear market since the financial crisis of 2008-2009. While the generation of investors that has come of age since then may lack the experience of their elders, today’s bear market participants have advantages that previous generations they could not imagine. Chief among them is perhaps the unrestricted access to information over the Internet and the ability to find and distribute it almost instantaneously. Not only has the proliferation of online brokerage firms and investment websites democratized investing; it enabled new and mostly young investors to build communities and share knowledge in new ways.

Gupta invested the money she earned making and selling Rainbow Loom bracelets.

Photo by Kate Medley

More than half of Gen Z adults — those between the ages of 18 and 25 — are already investors, with 26% invested in individual stocks, according to Investopedia’s 2022 Financial Literacy Survey. That would make them more financially active than every previous generation of their age, according to Investopedia. Gen Z is also the first generation born into a world where social media use is the norm, meaning their investment thinking is heavily influenced by peers.

“Peer learning is very powerful,” says Gupta, who also wrote a peer-reviewed book on personal finance and investing.

Gen Z respondents said they learned about investing online, with just under half saying they learned on YouTube or through other videos. About a third credit TikTok for their newfound knowledge. For the better part of the past two years, following investment advice from social media strategists has paid off. An analysis from 2006 to 2020 of more than 30,000 stocks worldwide found that stocks with the most positive media sentiment outperformed those with the most negative sentiment, according to market sentiment aggregator MarketPsych.

However, a bear market can point to the dangers of groupthink, whether on Wall Street or in the digital world. It’s something Gen Z is also learning as meme stocks crater, cryptocurrency crashes, and other assets boosted by online influencers fall back to earth. Many stocks that were favored last year on online forums like Reddit have fallen by double digits since then.

When she turned 14, Gupta used some of her earnings to buy a mother-of-pearl necklace.

Photo by Kate Medley

“In a bull market, everyone looks like a genius because they’re like, ‘I’m making incredible profits in everything,'” says Vivian Tu, creator of financial literacy content on TikTok. “And now, by definition, we’ve hit a bear market. People who didn’t weigh the downside against the pros will feel it now, and it’s a scary time if you’ve been overweight in risky asset classes.

Even conservative investors have suffered losses this year, with

S&P 500

down about 17%. Studies show that new investors are much quicker to sell than their more experienced elders – the exact opposite, in many cases, of what they should be doing. A Bankrate study found that 73 percent of Gen Z investors have traded actively this year, compared to just 28 percent of Gen X investors ages 42 to 57 and 25 percent of Baby Boomers.

Some experts worry that social media may be to blame for encouraging bad investment behavior. “A lot of things on social media are excellent advice; it’s just not nuanced,” says Ann Lester, former head of retirement at

JPMorgan
.

“It should be short and to the point, so some of the nuances are lost.”

But concerns about Gen Z’s risky business behavior may also be overblown. There is reason to believe this generation will be more financially conservative than their predecessors, after witnessing parental job losses during the financial crisis and the displacement caused by the Covid pandemic, according to Wells Fargo Advisors.

Gupta says she’s not too panicked by the prospect of a bear market because her investment strategy revolves around dollar cost averaging, or investing a fixed dollar amount regularly. She also researches each company whose stock she buys, studying financial statements, business terms and valuations.

“Whenever I buy a stock, I do so with the intention of holding it for the long term,” she says.

Many novice investors seem to have sharpened their pencils in recent months, says Zoe Barry, CEO of social trading platform Zingeroo. Of all the clients trading on Zingeroo’s platform, the activity of Gen Z investors most closely mirrors the recommendations of professional research firms, she says, noting that few still buy into meme advertising.

Tu, the TikTok content creator, agrees. She has 1.5 million followers on @yourrichbff, her TikTok account, and says that with fears of a recession growing, her followers are restless and bombard her with questions about how the current macroeconomic environment will affect them.

“People are talking about it like we’re about to move into our bunkers in three years,” she says.

That’s not the case, she assures them.

Email Sabrina Escobar at [email protected]

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