How Gen Z Can Respond to the Current Market

Today’s volatile stock market has affected every generation, but will no doubt be the most formative for Gen Z. In the past two years, these 20-year-olds have crowded the public markets, eager to start investing. Their interest was driven by a combination of factors, includingCOVID stimulus checks, better access to investment knowledge online, and affordable retail brokerage apps. Now, they are facing rapid deterioration of stock valuations—a shock for a generation who has only ever experienced soaring markets and exciting new assets.

Gen Z’s response to the current market is likely to form the generation’s investor habits long term, in the same way as Gen X was formed by the global financial crisis, and Boomers by the 1970s energy crisis. It is critical that Gen Z not give up on investing but learn from this experience and apply lessons to become better investors. Here are my words of advice:

Stay in the Markets

When positions are down, the question everyone asks themselves is: Do you stay in or pull out? Bear markets can be scary, but in investing in general, it’s important to take the long view. Any market — bear or bull — doesn’t last forever. And remember, bear markets are a fantastic opportunity to build wealth if you stay in for the long-term. Stocks lose 36% on average in a bear market. By contrast, stocks gain 114% on average during a bull market. Holding positions through a downturn, and even using it as an opportunity to build positions at lower prices, can pay off handsomely in the long run.

Ease Off on Active Trading

An Investopedia survey revealed that more than half of Gen Z adults have invested. That makes them more financially active than any prior generation at a comparable age. Moreover, a recent Nasdaq survey found that Gen Z investors are far more likely than any other cohort to trade on a daily basis.

Here, I must offer words of caution. The world is changing at an unprecedented rate right now. It’s tempting to dive into short term stock trading, buying and selling for short-term profit, but the real opportunity that Gen Z has right now is the opportunity to capitalize on buying stocks for long-term gains. There are plenty of bargains in tech and energy if you have a longer investment horizon.

Develop a Risk Strategy

The final advice I would like to offer Gen Z is to have a clearly articulated risk strategy. Set parameters and stick to them by using the many tools available today. For example, you can mitigate risk by diversifying your portfolio using pooled investments such as exchange traded funds or index funds, robo-advisors, or fractional shares.

Gen Z has the chance to develop into the greatest generation of investors the world has ever seen. They showed an unprecedented appetite for investing during the pandemic and now have the opportunity to emerge from this market cycle as experienced investors with downturn experience at a very young age. If Gen Z waits on the side-lines, they risk putting themselves at a long-term disadvantage, losing out on both a great long-term buying opportunity and invaluable experience.

So far Gen Z investors appear to still be interested in investing, but they are now significantly more aware of the risk. We're seeing strong continued activity from young investors on our platform despite the market turn, and based on his conversations with all these users, I remain very bullish for the future of investing.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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