Gen Z embraces investing — with signs of caution

Younger people are flocking to sign up to low-cost investment brokerages and teaching themselves how to invest, according to new research.

During the pandemic, 16 per cent of Britons aged between 18 and 24 began investing for the first time, compared with 10 per cent across all age groups, a survey by Halifax found.

Spare time was the top reason young investors made the push into equity markets. Nearly a quarter of respondents said they started investing because they had more time to learn about it and do independent research.

Other evidence suggests a trend that is here to stay. A new survey by Barclays Smart Investor, which saw an uplift of 88 per cent in account openings in 2020, found that nearly half of investors planned to cut back on spending after lockdown to maintain their investing habit.

Online brokerages are experiencing record levels of engagement from young, tech-savvy investors raised on YouTube tutorials and Reddit forums and attracted by the emergence of low-commission trading.

But experts noted that it had been easy for these “self-directed” investors to make money during a bullish recovery, when government stimulus buoyed sentiment and low yields forced money into equities, driving up prices.

Traditional brokers and wealth managers have also benefited from the surge. Hargreaves Lansdown reported a jump in profits for the first half of its financial year, with a 10-year drop in the average age of its clients to 47 years old driven by sign-ups from younger investors.

Young people have earned a reputation for speculative day trading, engaging with investments on social media and swapping memes about popular penny stocks like GameStop and AMC that drove their valuations to dizzying highs.

But the youngest investors also show signs of caution. Analysis by UK investment platform FreeTrade found that investors under the age of 25 traded smaller amounts — as a consequence of having less money to invest — but also traded less frequently than older age groups. Top orders among this cohort included Tesla, but 5 of the top 10 holdings by Generation Z investors (those up to the age of 24) were exchange traded funds, or passive investments.

“This cohort might still be in toe-dipping mode but the appearance of ETFs tracking the main indices, which most would look at as core holdings, shows it’s far from YOLO-fever [you only live once] that’s gripping the newest investors,” said Dan Lane, senior analyst at Freetrade.

Gen Z investors were nearly five times as likely to say they get financial advice from social media as adults aged 41 and over, with 28 per cent turning to friends and online influencers for guidance, according to a March survey by CreditCards.com, a financial services adviser.

However, Gen Z was also the generation most likely to seek out financial advice. Almost 80 per cent received advice, compared with 60 per cent of Baby Boomers and 64 per cent of Gen X investors.

The GameStop spike acted as a spur to the youngest aspiring investors. Interactive Investor, an investment platform, saw a 1,388 per cent increase in account openings from 18-24 year old men in the final two weeks of January and a 1,171 per cent increase from women of the same age, compared with the year before.

The rise in trading comes as the FCA cautioned that more than two-thirds of new entrants into the market were buying high risk investment products that were little understood, such as cryptocurrency and foreign exchange, that could lead to heavy losses.

“There’s no question that many younger investors have participated in some risky investing behaviour over the last year, but it is not the whole story,” said Moira O’Neill, head of personal finance at Interactive Investor.

“Our younger investors have more investment trust exposure and less direct equity exposure than older generations. For every GameStop in the top 10 most-bought funds over the last year, you’ll find several solid blue chips running alongside it,” she said.