The GameStop Effect
As more and more young people invest, www.magnifymoney.com surveyed 1,500 Gen-Xers and millennials in late January to learn more about what drives their investment decisions.
The survey uncovered that almost 6 in 10 Gen Z and millennial investors, ages 40 and younger, are members of investment communities or forums, such as Reddit. Nearly half turned to social media in the past month for investing research.
YouTube is the top source for investing information among young investors, with 41% turning to the site in the past month. Other social media platforms that investors visit for related info include TikTok (24%), Instagram (21%), Twitter (17%), Facebook groups (16%), and Reddit (13%).
22% of Gen Z investors say they were younger than 18 when they started investing, versus 8% of millennial investors. 40% of Gen Z investors say they were encouraged by their parents to begin investing, which backs the earlier start.
Nearly two-thirds (64%) of investors 40 and younger have withdrawn money from their investment accounts to spend.
22% of young investors trade stocks at least once a week.
It is great for younger generations to intentionally learn about money. It seems as if the financial illiteracy cycle has finally broken. However, are they learning the right lessons?
I call it the GameStop effect. Younger generation-investors are learning to become speculative investors by expecting instant gratification through big returns versus being traditional investors where the returns are average and boring. The enormous/speculative rise in Game Stop stock has attracted many investors to try their hands at making big returns.
The GameStop effect creates an environment of easy stock gains which deepens the impression that big gains are easy to come by. Further, it makes the investor feel as if they transformed into an overnight-sensation as a stock trader rather than a benefactor of the late-stage bull market cycle and a little luck.
Just know that there is a dark side to speculative investing. To become proficient in trading stock, you have to go through years of learning the nuances of trading stock. It is also essential to put your emotions aside, which might be the toughest of all. It is crucial to realize that the pursuit of easy money is not an ideal investment practice. If you rely on making easy money, big speculative losses can come with the territory.
Case in point: the millennial who borrowed $20,000 to buy GameStop stock. Within days he lost 80% of his money. There is nothing wrong with speculative investing as long as you understand that it comes with a much higher risk than the average investor takes. Most importantly, stock trading might appear to be easy money. However, reality often catches up with speculative stock trading, and the losses can mount.
If you want to know more about the survey results, go to https://www.magnifymoney.com/blog/news/young-investors-survey/ to find the full survey
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