Many young investors are approaching different investment options, fearing losing their funds in today’s uncertain and volatile economy. With a surge in inflation, impending recession, and high interest rates, Gen Z, at the beginning of their careers, seeks investment instruments that can protect their financial security in the short- and long run.
A recent study by the Financial Industry Regulatory Authority (FINRA) and the CFA Institute revealed that 25% of Gen Z members in the United States initiated their investments before age 18. The same research also found that cryptocurrencies hold a prominent position as a favorite investment vehicle among young people.
This explains the sharp increase in online searches concerning crypto-related topics, such as the latest fluctuations in the Bitcoin price or its over-time evolution. 55% of young investors have already welcomed cryptocurrencies into their portfolios. This demonstrates their forward-thinking mindset and determination to improve their financial welfare, seeking stability in the face of economic unpredictability. Some are not content with their status quo, whereas others seek to seize money-making opportunities to build wealth in the long run.
While navigating the complex waters of finance is usually smoother with some experience and vast knowledge, Gen Z is reluctant towards financial planners like brokers or advisers. Instead, many rely on social media and different online platforms for investing guidance, with some also turning to familial and friendship circles for tips and recommendations.
With a looming recession and a challenging economy, more and more youngsters are focusing on safeguarding their finances against inflation. Here, we’ll dive deeply into their favorite investment vehicles to date, casting light on their investment tendencies and behaviors.
Real estate
Real estate has remained one of the most popular investment options up to the present. Buying, renting, managing, and selling properties can prove a profitable long-term venture despite the upfront related costs. Similar to how precious metals maintain their value in times of inflation, tangible assets like real estate properties act as good inflation hedges, generating revenue through property appreciation. Furthermore, real estate holdings can safeguard investors against inflation, as rents and homes typically surge in value along with the prices of goods and services.
Many Gen Z members find themselves in the early stages of their careers, struggling to allocate their finances across various priorities, whether it’s education, leisure, or building and growing their investment portfolio. In this regard, there’s a stringent aspiration among them to add real estate properties to their holdings to be financially protected when everything around them jumps in price.
According to a recent survey by GOBankingRates, a significant proportion of Gen Z members plan to invest in real estate in the foreseeable future. Remarkably, approximately 42% of them express their intentions to acquire a home or another real estate asset within the next five years.
With 41% of the total home purchases in 2021 being made by millennials, youngsters are coming for the housing market, and the balance is equilibrating. Homeownership is seen as a revenue catalyst for a significant part of Gen Z and a haven in inflationary environments.
Cryptocurrencies
Gen Z knows the best way to protect an investment portfolio from potential risks is to rely on diversification methods. As such, they’re acquiring different types of cryptocurrencies, like altcoins and stablecoins, ranging from leading ones like Bitcoin and Ethereum to ones that have recently broken into the market but have promising prospects.
Numerous reports and surveys show that cryptocurrencies are a preferred investment vehicle for Gen Z, who represent the biggest supporters of their adoption and their underpinning technology. Part of the reasoning behind their affinity to digital money lies in their symbiotic growth with social media and the technological advancements that have characterized this era.
What’s more, their openness and attraction to cryptocurrencies also coincide with the abundance of user-friendly investment apps that enable users to acquire digital holdings quickly and effortlessly. Needless to say, their significant access to educational and informational resources, which help them build a profound understanding of the inherently complex realm of cryptocurrencies, is a definite advantage.
Cryptocurrencies are substantial investment vehicles, and as Gen Z backs up the digital money trend, they’ll become even more critical players in the world of finance.
Commodities
Commodities like precious metals, agricultural products, and natural gas are some of the most sought-after ventures when inflation rates rise. These can be exchanged just like securities, and investors look at them to navigate inflationary waters and protect their finances against market volatility. The benefit comes from their intrinsic values. Their prices aren’t typically correlated with each other, so when the value of an asset drops, other investments may independently rise in value or at least remain unimpacted.
Youngsters looking for commodities to protect their capital from inflation typically allocate portions of their portfolio through ETFs and futures contracts to different types of commodities. Moreover, because commodities are production inputs, their prices tend to go up when inflation rates increase, giving the portfolio inflation-resistant characteristics and making them effective store-of-value assets.
Young investors are transitioning through a change in how different commodities are valued and sought after. For instance, with the pressing climate change challenges, a substantial portion of Gen Z focuses on potable water or clean energy.
Collectibles
Investing in things that bring happiness and foster a sense of achievement is truly splendid. There’s an endless world of possibilities to explore when venturing into the collectible realm, and youngsters are more prepared than any other generation to engage with them.
Examples can cross the borders of imagination; books, cards, furniture, postcards, toys, currencies, and NFTs are just some investment vehicles that can provide profitable opportunities when their value increases with time. They differ from traditional financial investments that suffer price alterations in volatile environments, making them good stores of value in difficult economic periods.
A study from global management consulting firm Brain & Company unveils that youngsters will account for approximately 40% of the luxury market by 2035, which invariably impacts shopping trends and tendencies. Apart from the typical luxury goods one may think of, they’re more explicitly focusing on items with high cultural value or modern collectibles.
They’re already driving change and redefining some conventional trends that millennials are accustomed to. As they go through financial ups and downs, they become more vigilant and open-minded to exploring different investment options.
Gen Z is more financially-aware than ever. The investment vehicles illustrated above are some of the options youngsters focus on in their attempts to secure financial stability.