Are Generations Y and Z “too” confident in their ability to invest alone?

Deciphering the behavior of generations Z and Y, who are increasingly attracted to the stock markets.

Generations Y (or Millennials, born between 1984 and 1996) and Generation Z (born between 1997 and 2010) seem to be increasingly drawn to the stock markets. How do these 18- to 38-year-old investors approach this area? Decryption.

Generations that “play” in the stock market…

Since 2020, although more and more investors in France are investing in the stock market, they are also getting younger and younger. According to an AMF study from December 2021, their average age has dropped from 58 in 2018 and 2019 to 46 in 2020. 28% of them were under 35 compared to 12% in the previous 2 years.

Generations Y and Z are particularly attracted to stock market or cryptocurrency transaction sites and apps that offer video game-like interfaces (transactions are welcomed with a shower of confetti, slot machines or lottery tickets offered to open an account, etc.). . For some of these young Internet users, investing is a game… where you win or lose, like in a casino.

…permanently connected…

These “digital natives” are hyper-connected through multiple apps, mostly on smartphones. They shop online confidently, are often addicted to social media, they are big consumers of information…often believing that advice gleaned from the Internet allows them to act as informed consumers.

The financial sector is no exception in this environment. Connected young investors think they can gain enough experience over the Internet to stand on their own two feet. In the United States, 41% of Gen Z investors say they use the TikTok social network to access financial information (January 2021 Lending Tree survey).

…who believe they can train on their own

This sense of benefit from good financial knowledge is, of course, not entirely false. Many websites dedicated to finance contain interesting information about this sector. Internet users have probably never been so well informed about the movements of the financial markets.

But is this knowledge enough to manage a portfolio and adapt its management to the profile of the investor and the volatility of financial markets? The trend of the last few months and especially the last few weeks is testing the nerves of investors.

A drop of 20% to 30% of the world’s major stock indices, a fall in bonds in similar proportions, and the collapse of cryptocurrencies (the price of bitcoin is divided by 3) – all investors have good reason to doubt, and especially the less experienced or poorly accompanied.

Knowing the basics of how the stock market works is a positive first step, but it is far from enough to optimize your investments and adapt them to financial market trends. According to Philip Fernbach, a professor at the University of Colorado, “72% of young investors say they are confident in their investment decisions. This overconfidence is dangerous, especially since most of them have gone into debt to invest. »

Behavioral finance research shows that the lone investor is likely to be influenced by emotional factors and therefore responsible for irrational actions. Overconfidence, for example, inevitably leads to underestimating risk and deviating from the rules of diversification.

Professionals can help these young investors improve their practice

Faced with such a situation, there is no doubt that the youngest investors should be accompanied by financial management professionals. The latter do not like the expression “play on the stock exchange.” It goes against their values. The serious investor does not gamble (with the frivolous idea that he can win or lose); he invests prudently, striving for the best long-term return

However, this does not mean, contrary to what young investors may think, that a professional will encourage them to manage their investments too “plan-to-plan”. On the other hand ! Precisely because he is an expert, he will be able to lead them to more dynamic management.

In an educational way, a professional will be able to help his client adopt a controlled approach to risk, aimed at increasing the profitability of his portfolio. And this is while respecting the personal context of the investor: how much of his savings can he place on the stock market? What is his investment horizon in relation to his future projects? What is his tolerance for loss? So many questions to help determine the strategy for implementation.

Finally, the EA will also allow his client to counter the natural tendencies in highly volatile markets that tend to call into question a certain long-term strategy: a drop should not cause hasty sales!

If the growing interest of younger generations in the values ​​of the stock market is a good omen, it seems important to guide them not only to preserve their financial interests, but also to develop the equity investment share of the French heritage. An urgent issue is to channel the savings of our fellow citizens into the economy.