The bear market has brought “fear and uncertainty” to Gen-Z. How they cope. – Barrons | Region & Cash

Ella Gupta made her first investment at the age of 10. With the help of her parents, she took half the profits from her bracelet-making business and invested in the stock market. At 14, she opened a Roth IRA after getting her first job as a dental instrument cleaner. Now, at 17, Gupta faces her first bear market.

When the stock market is foaming, there is also an opportunity to buy stocks in quality companies on offer. “For younger investors, a market correction or even a bear market can be beneficial to your long-term nest egg if you want to have the discipline to persevere and the strength to buy more when markets pull back,” says Greg McBride, chief financial analyst at bank rate.

US stocks have not experienced a sustained bear market since the 2008-2009 financial crisis. While the generation of investors that has since come of age may lack the experience of their elders, today’s bear market newcomers have advantages that previous generations could not imagine. Perhaps the most important of these is the unhindered access to information via the Internet and the ability to find and disseminate it almost instantaneously. The proliferation of online brokers and investment websites has not only democratized investing; it has enabled new and mostly young investors to build communities and share knowledge in novel ways.

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

Photo by Kate Medley

According to a 2022 Investopedia Financial Literacy survey, more than half of Gen Z adults — those aged 18 to 25 — are already investors, with 26% invested in individual stocks. This would make them more financially active than any previous generation their age, according to Investopedia. Generation Z is also the first generation born into a world where social media use is the norm. which means their investment thinking is heavily influenced by peers.

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

Respondents to the Gen Z survey say they learned about investing online, with just under half saying they learned from YouTube or other videos. About a third credited their newfound knowledge to TikTok. For the past two years, following investment advice from social media strategists has paid off for the most part. A 2006-2020 analysis 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 highlight the dangers of groupthink, whether on Wall Street or in the digital world. That’s something Gen Z folks are also learning when meme stock craters, crypto crashes, and other assets boosted by online investment influencers hit the ground again. Many stocks that were favorites on online forums like Reddit last year have fallen double-digits since then.

When she turned 14, Gupta used part 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 say, ‘I make incredible returns on everything,'” says Vivian Tu, a financial literacy creator on TikTok. “And now, by definition, we’re in a bear market. People who haven’t weighed the cons against the pros are now feeling them, and it’s a scary time if you’re overweight risky asset classes.”

Conservative investors have also suffered losses this year

S&P500

down about 17%. Surveys suggest that newer investors have been selling much faster than their more experienced elders — in many cases, exactly the opposite of what they should be doing. A Bankrate survey found that 73% of Gen Z investors have actively traded this year, compared to just 28% of Gen X investors aged 42 to 57 and 25% of baby boomers.

Some experts worry that social media could be to blame for encouraging bad investing. “Lots of things on social media are excellent advice; it’s just not nuanced,” says Anne Lester, former director of pensions at

JP Morgan
.

“It has to be short and digestible so that some of the nuance is lost.”

But concerns about risky trading behavior by Gen-Z might also be overdone. According to Wells Fargo Advisors, there is reason to believe this generation will be more financially conservative than their predecessors, having seen parents lose their jobs during the financial crisis and the dislocations caused by the Covid pandemic.

Gupta says she’s not overly panicky about the prospect of a bear market because her investment strategy revolves around dollar cost averaging or investing a fixed dollar amount on a regular basis. She also researches every company whose stock she buys, studying financial statements, terms and conditions 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 Zoë Barry, CEO of social trading platform Zingeroo. Of all clients trading on Zingeroo’s platform, Gen Z investor activity most closely reflected the recommendations of professional research firms, she says, and remarkably few still buy into the meme-stock hype.

Tu, the creator of TikTok content, agrees. She has 1.5million followers of @yourrichbff, her TikTok account, and says her followers are uneasy amid rising recession fears, bombarding them with questions about how the current macroeconomic environment will affect them.

“People talk about it as if we’re going to move into our bunker for three years,” she says.

That’s not the case, she assures them.

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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