Today’s volatile economic climate is certainly having a profound effect on every generation of investors and shareholders, with Millennial and Gen Z investors likely to be the most impacted. Many Millennials and Gen Z investors, who kicked off their investing career when it was fun, are now facing tough times due to falling stocks and cryptocurrency crashes. If you’re one among them wondering what’s going on and how to take advantage of it, the following are some tips to help you out!
Over the past two years, the number of 20-year-olds investing in the public markets has grown substantially, as online trading has made investing easier, and Gen Z investors are increasingly eager in their quest to achieve financial independence earlier in life. Several factors contributed to their interest in investing, notably easy access to financial knowledge, quick registration processes, transparent operations, various assets to diversify their investment portfolio, and affordable investment platforms.
Unfortunately, as a result of spiraling inflation, dwindling stock prices, and the recent cryptocurrency collapse, many of them are now facing an unprecedented decline in their financial situation. There is no denying that this is a shock for a generation that has been accustomed to soaring markets and exciting new assets from a very young age.
“What we’re seeing is that these Gen Z investors are often stunned by how fast and how far their investments have fallen in such a short time”Jason Dorsey, a Gen Z researcher and the author of “Zconomy”
The reality is that many Gen Z investors have never been involved in a market like this before, so this is something completely new, especially for those who have taken up investing during the pandemic. Moreover, Dorsey pointed out, “with inflation increasing around the world, young people have more to worry about as they are seeing their portfolio shrink and living costs increasing, especially for things like rent, gas, and food, as they look to improve their lifestyles”.
“This is a difficult time for many of them as they failed to consider the full risk of investing in assets such as cryptocurrency and meme stocks,” he added. According to our 2021 State of Gen Z survey, “41% of Gen Z investors have trusted cryptocurrencies”. While trust plays a big part in making investments, it is also a potential reason for not fully understanding the risks involved.
What Gen Z investors should learn from the current market?
Gen Z’s reaction to today’s market will likely shape the long-term habits of this generation in terms of investing, just as Gen X was shaped by the global financial crisis, and Boomers by the energy crisis of the 1970s.
According to Dorsey, “Gen Z investors will have decades ahead of them to recover from the current crypto market freeze and stock market decline, as well as to learn from the mistakes they have made so far”. The more you educate yourself on the economy and what you’re investing, the less you’ll succumb to fear, and capitulation, he added.
While some Gen Z investors are still looking at social media platforms and forums to find out how their peers are protecting their portfolios during this time and others plan to buy popular beaten-down stocks at a discount. The wisest thing to do in this situation is to get more educated and learn about past Fed policy changes and market outcomes based on technical and fundamental analysis, to become better investors.
Why it is important to stay in the Market?
People more often ask themselves: Do I stay in, or do I pull out when the position is down? While it can be scary to be in a bear market, it is important for Millennial and Gen Z investors to take a long-term perspective. Neither a bear market nor a bull market lasts forever. Keep in mind that bear markets offer fantastic opportunities to build wealth over the long run.
A bear market results in stock losses of 36% on average. A bull market, on the other hand, results in stock prices gaining 114% on average. There are many benefits to holding onto positions through a downturn, and in some cases even taking advantage of it by building positions at lower prices, allowing you to reap the benefits for years to come. Several prominent investors like Warren Buffet have proven that long-term investment strategies can be very successful and lucrative due to their compounding power.
“If you’re a long-term investor, you would absolutely buy now,” says Wharton School professor Jeremy Siegel. “I think these are absolutely great long-term values”, he added to the conversation.
While investing in the financial market in times of recession can be a gut-wrenching experience, a majority of prominent economists suggest otherwise. Even though it may seem gloomy right now, and being cautious is wise, there are plenty of reasons to be optimistic if you plan to make long-term investments. For those who enjoy a certain level of financial security, recessions can be the ideal time for Gen Z investors to put money in high-quality businesses over long-term positions.
Day Trading can be an excellent earning opportunity
A day trading strategy involves frequent purchases and sales of securities in the open market. Some traders define day trading as buying shares of stock in the morning and selling them again sometime later in the day. However, for high-frequency traders, day trading is an excellent opportunity to earn faster as they execute a number of trades every day and close them at the end of the day without holding positions overnight.
A big benefit of day trading is that you can potentially earn a lot of money very quickly. However, one should understand that day trading is a risky undertaking. The journey to achieving success in day trading will take you through many highs and lows and the key to being successful is to have a good understanding of how the daily events could impact the asset you’re trading and how you can adjust accordingly.
To protect one’s hard-earned savings during an economic recession, choosing the right financial trading products to invest in is of utmost importance for Gen Z investors. Opting for forex trading during recession can undoubtedly be a smart move. Because a recession influences the foreign exchange market differently from other assets. For example, the stock market tends to fall during economic slowdowns, but currencies serve more as lubricants than as tangibles. Stronger economies tend to gain value during recessions, while weaker ones tend to lose value.
If you are among the thousands of traders looking to grab the bull by the horns and make a profit, forex day trading will be an excellent choice for you. Discover the Best Forex Day Trading Strategies and Tips in this guide.
Importance of a Risk Management Strategy
The last piece of advice I would like to give Gen Z investors is to have a clearly defined risk management strategy. It is inevitable for financial markets to experience fluctuating levels of volatility throughout the year based on consumer perceptions and confidence. There are also a number of other factors that can influence market performance, including economic, legislative, and corporate factors. The role of risk management here is crucial.
Despite your wish that all your positions will soar, there will be periods in which some of your holdings will lose money. If that happens, you must make other investments to compensate. In view of the fact that Gen Z investors have the opportunity to grow into the greatest generation of investors that the world has ever seen, with the range of assets available for them to invest, they can mitigate the risk they face by diversifying their investment portfolio.
The goal of diversification is to improve the performance of an investment portfolio by reducing risk. Gen Z investors will likely not only prosper on their way to financial independence if their investments are diversified but also investing in varied assets at a young age will also put them in a favorable position in the long run.
How can Forex spice up your Investment Portfolio?
Every successful investor knows that diversification is inherent to a profitable investment portfolio. However, it’s important to note that diversification does not necessarily require a wide variety of assets to be successful.
“You’re more likely to get better results if you diversify within one asset class”Warren Buffet, Investing genius!
You must, however, choose an asset carefully. In this regard, a forex portfolio is an excellent choice!
Forex portfolios allow you to earn profits by trading a wide range of currency pairs along with many assets including Stocks, Cryptos, Indices, Metals, Energies, and Commodities worldwide. Trades in other forms of trading are limited to certain hours of the day. However, forex allows you to remain diversified while also keeping your investing activities active even when other markets are down. The forex market is also the most liquid in the world, allowing any trader to profit regardless of market conditions by going long or short.
Diversifying your forex portfolio across different asset classes is a good way to protect yourself from unsystematic risk (avoidable risk), control systematic risk (unavoidable risk), and ultimately build a portfolio that is likely to be more profitable and stable. Each currency in your portfolio has its own market conditions. Therefore, a decline in one currency does not necessarily imply a decline in your entire portfolio.