Investing on your own: Gen Z

Starting your career is a journey, especially when you work in the startup world.

Unfortunately, I was a part of a company restructuring this past week and was laid off. With that, I hope to be writing a lot more over the coming weeks as I continue my search for a new position.

Today, we are talking about some investing trends I’ve seen among my peers.

At the beginning of my high school years, I got deeply invested in the financial markets. With this, I became known as the “investments” guy by my friends. I created a private group chat with friends where I would often share financial insights and help them understand the market and how it operates.

Hypothesis:

This reputation has followed me into my post-grad days, and these same friends are now coming to me for insight into how to invest in their IRAs or regular investment accounts. We are all grown up, we have real jobs, real income, and are starting to make decisions that have long-term effects. One of the biggest decisions is how to effectively manage your money.

After conversations with many friends I’ve built a small hypothesis: Around half of Gen Z’s have their parents manage their investments or don’t invest at all (keeping all their money in cash).

The All-Cash Side

A select few people my age have taken the side of choosing to keep most of their money in cash, some of which not even using a high-yield savings account that is paying above 5% at current rates. Most of the others I would say are mainly using Capital One (4.3% APY).

There is nothing wrong with keeping your money all in cash, some people literally just want to be able to see it all in one place (yes this is a real data point I have heard). My best guess as to why people want to do this comes from the side of fear. The turmoil in the markets during our lifetime may have scared some people away from investing. Even though over the long term the markets historically go up, our generation is extremely short-sighted and has a very low attention span. The idea of 7% avg returns a year for 10 years just isn’t influential enough for people to get involved.

Now, no doubt, these people will start to invest as they get peer pressure from their companies, friends, and family, but the initial reluctance is still a barrier that financial companies have to learn to tackle.

The Parent Oversight

I’ll start by saying that there is nothing wrong with having your parents manage and oversee your investments. It is extremely common and they have way more experience than most of us do when it comes to making long-term investments.

My only fear is that the way we can invest our money vs. the way our parents were able to invest their money when they were our age is dramatically different. I would imagine that when our parents were in their young 20s, most long-term investments were going toward mutual funds and low-risk ETFs. While this strategy is timeless and has yielded great historical results the dynamics have simply changed.

Since 1990 (when most of our parents were young 20s), the market has grown 24.6x and the internet and amount of financial products and innovation have exploded. There are new and improved ETFs and robo-advisors that allow for a completely different makeup of a long-term portfolio.

When parents are managing money for their kids, it can result in two things in my eyes. 1) The young adult doesn’t learn about money management and how to make the right investment decisions and 2) the long-term portfolio will not have the right risk tolerance.

In my eyes, if you are in your early to mid-20s with a full-time job, no mortgage, a small amount of loans, and no family, you should be extremely aggressive in your investment approach. The way our parents are currently used to investing is generally risk-averse.

So, how do you get more young adults to proactively manage their own money?

Here are a few ideas based on my experience…

1. Brokerages and Robo-advisors Need to Increase Social Media Presence

   • Social media is where my generation lives. It is where we gather a lot of ideas, insights, and opinions. There are a few ways to approach the media method. If you choose to do the influencer route, you have to make sure you align yourself properly with the right personality and brand that matches the product you offer. If you choose to go down the advertising route, you don’t want to just become white noise on a feed. It requires a lot of strategy and work to dive deeper into social media, but the rewards can be worth it.

2. Work Top-Down: Advertise and Market with the parents

   • Since there are a lot of parents who are helping manage money for their kids, it could be worthwhile to advertise and build marketing around the parents who are helping their kids. Instead of the parents just opening the same investment account with Vanguard, they could be influenced to work with a new platform that promises more education and offers a year without fees (or some similar promotional offer). At this point in our lives, our parents are still super influential, if they tell us to go with one investment platform over the other, there is a high chance that we will end up taking their advice.

3. Create some crazy new products

   • Just as Roundhill Investments created popular thematic ETFs, like BETZ and WEED, I believe there is room to get creative and make some great new financial products. For example, one idea I had was age ETFs. For example, you can create an ETF for people born in the year 2000 (like me). People born in the year 2000 likely have high disposable income with little obligations, so this ETF can be a little more riskier. As the years go on, the 2000 ETF would become more and more risk-averse as this age group starts to buy homes, start families, etc. Vanguard does something similar to this with target retirement date ETFs.

Final Note

Investing for my generation has always been something I have kept a sharp eye on and will continue to down the line. There is a ton of opportunities in this space and I am excited to see what new ideas and products are built around this. As I said in my first note, this is all Secondary Opinions.

See you soon,

Tom