Investors get younger, though maybe not wiser

Youngsters are investing at an earlier age these days, and that’s a mixed blessing.

On one hand, it’s a good thing, because it enables young people to learn about responsible ways to increase their wealth. On the other hand, there’s reason behind the cliché “youth is wasted on the young.” Plenty of young people are putting their money into risky cryptocurrencies and options.

For Generation Z (those born 1997-2012), the average age for their first investment is 19, according to a Charles Schwab survey. The average is 25 for millennials (those born 1981-1996), 32 for Generation X (born 1965-80) and 35 for baby boomers (born 1946-64). 

You’re probably well aware of the reasons for this trend. It’s easier than ever for young people to invest. They can use their phones and computers with no commissions. And there is plenty of information about investing available to them online.

It appears that many young investors are acting wisely. Among Gen Z, 57% deploy a buy-and-hold strategy, and among millennials, it’s 59%, according to Schwab. Those numbers are close to the 60% reading for baby boomers, who generally should invest more conservatively to avoid going broke in old age.

Also, 57% of Gen Z hold growth investments, and 56% of millennials do so. Growth investing is generally a smart strategy for young investors, because it can generate strong long-term returns. But using growth investments to get rich quick, through young technology stocks for example,  often ends in disaster.

Risky Business

Some other investment strategies used by young people also can lead them to the poor house. That’s particularly true among men and people who started investing during the pandemic, according to Barron’s.

Cryptocurrencies are one danger, thanks to their extreme volatility. Bitcoin, the most-traded digital currency, stood at $7,800 in November 2019. It soared to $59,300 in March 2021, plunged to $16,500 in December 2022 and has since jumped to $96,300 as of Wednesday.

Young investors are clearly attracted to crypto, with 42% of men aged 18-29 saying they have traded/invested in cryptocurrency or used it for transactions. To be sure, women are less interested, at 17%. Perhaps women are wiser than men.

Options represent another hazard for young investors, given their multitude of moving parts – purchase price, strike price, expiration date, and multiple varieties of puts and calls. 

However, plenty of youngsters are giving it a shot: 36% of respondents aged 18 to 34 said they have traded options, according to a 2022-page study by Finra Investor Education Foundation. That far exceeds 21% of those aged 35 to 54 and 8% of those 55 and up.

So the youth investing trend can be viewed as a glass half-full or a glass half-empty. Some young investors will take important steps toward financial security, and some will do the opposite. 

The author of this story is 64.