How Gen Z’s Retirement Planning and Investing Are Different

Three Gen Z friends on a sofa smiling and talking with one another.

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It is said that Generation Z, individuals born in the late 1990s to early 2010s, is the first generation to grow up with smartphones and social media, making them inherent digital natives. This has led to a very different experience with investing and retirement planning for Gen Z, as they have access to many investing tools and technologies not available in the past. This shift presents both new opportunities and challenges in their investment journey.

Use of mobile apps

Investing and trading in the financial markets has never been more accessible. Mobile apps for your brokerage platform of choice are available on your smartphone, and you can place trades quickly and easily during market trading hours. You can even queue up a trade while the markets are closed. And if you invest in digital assets, trading is available worldwide 24 hours a day. Relative to how investors accessed the markets 50 years ago, access has been democratized, and trading costs have been substantially reduced.

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Apps like Robinhood have offered equity trading for $0 and have ridden that business model to success. Similarly, other brokerage platforms, like Schwab and Fidelity, have reduced trading commissions to similar levels to compete.

Furthermore, technological advances have allowed more creative ways to invest, with platforms now offering fractional share trading. An example of fractional share trading is if, in the past, Apple shares were trading at $200, but you had only $100 to invest, you either had to save more before buying shares or hope the price dropped. With fractional sharing, you can buy a portion of Apple at $100 and participate as an investor.

Using your bank’s or individual budgeting apps allows you to track all your investments easily, especially if they are spread across multiple accounts, and typically see price changes in real time.

Individual stock trading and other assets

According to a recent 2024 Motley Fool survey, 37% of Gen Z investors own individual stocks and 22% own digital assets. A majority of Gen Z respondents say a high-performing portfolio should contain between one and five stocks. The same survey suggests that Gen Z investors trade more frequently than investors from other generations, with 70% trading at least once a month.

Understanding risks

Given this type of investing portfolio, there are important factors and risks to consider. First, digital assets, or cryptocurrencies, are a very volatile asset class. Many investors have learned this the hard way over the last few years, with large swings in market values. Bitcoin peaked in late 2021, only to lose about two-thirds of its value over the next year. It rallied strongly starting in 2023, illustrating how risky this asset is.

Other lesser-established digital assets can hold even more risk and are subject to potential, unexpected drops. Investors should also be wary of newly minted cryptos, which may be pump-and-dump schemes preying on unsophisticated investors. Virtually anyone online has the ability to develop a new crypto token. They can then promote it on social media and internet forums, potentially attracting investors and influencing the token's price, which might allow them an opportunity to profit. Since crypto, by its very nature, is decentralized and is often traded on exchanges outside the U.S., it is virtually impossible to recover assets if fraud is committed overseas.

For clients who want to invest in digital assets, our firm generally believes it’s prudent to limit the total investment to a small portion (1% to 2%) of the total portfolio, as digital assets are still unregulated by the government and subject to much more investing risk. If your digital assets were to lose all value overnight, limiting your exposure can help to not torpedo your long-term financial goals.

Long-term vs short-term performance

Similarly, a lack of diversification in stock holdings can be a critical issue. Holding positions in a small handful of stocks substantially increases your idiosyncratic risk (or single-company risk). If you hold a large position in one company, if things go well and the stock appreciates, there is a potential for you to do well. If the company has a bad quarter or bad year and the value drops, your portfolio and net worth are far more exposed. The large tech companies have had a good run in 2023 and helped drive the broader market higher. Still, it’s important to remember that in 2022, many of the large tech company stocks were down more than the S&P 500 — Meta lost 64%, Amazon lost 50%, and Alphabet (Google) was down 39%.

Given Gen Z’s tendency to trade more frequently, they may be trading in and out of positions based upon short-term performance. In my experience, this tends to hurt investors, as repositioning during major market turmoil leads to bad timing decisions. One of the values that a financial adviser may provide is the discipline to remain invested during tough markets and not trade based on emotion.

It's very important to create a durable asset allocation for long-term goals. For younger investors like those in Gen Z, we call this model Build and Grow. Even with plenty of time to recover from market downturns, diversification is essential, and managing risk is critical to success in the long run.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Shane W. Cummings is based in Halbert Hargrove’s Denver office and holds multiple roles with Halbert Hargrove. As Director of Technology/Cybersecurity, Shane’s overriding objective is to enable Halbert Hargrove associates to work efficiently and effectively, while safeguarding client data. As wealth adviser, he works with clients in helping them determine goals and identify financial risks, creating an allocation strategy for their investments.