Generations Y and Z “too” confident in their ability to invest independently?

Deciphering the behavior of Generation Z and Y, which seem to be increasingly attractive to stock markets.

Generations Y (or Millennials, born between 1984 and 1996) and Z (born between 1997 and 2010) seem to be increasingly attracted to stock markets. How do these investors between the ages of 18 and 38 approach this area? Transcript.

Generations that “play” in the stock market …

Since 2020, although more and more investors in France are investing in the stock market, they are also getting younger and younger. According to an AMF study in December 2021, their average age decreased from 58 in 2018 and 2019 to 46 in 2020. 28% of them were younger than 35 years compared to 12% in the previous 2 years.

Generations Y and Z are particularly attracted to sites and programs for exchange or cryptocurrency transactions that offer interfaces similar to video game interfaces (transactions that occur with a shower of confetti, slot machines, or lottery tickets offered to open an account, etc.). . For some of these young Internet users, investing is a game … in which you win or lose like in a casino.

… permanently connected …

These “digital natives” are ultra-connected through several applications, mostly on smartphones. They confidently buy online, often addicted to social media, they are big consumers of information … often believing that advice from the Internet allows them to act as informed consumers.

The financial sector is no exception. Related, young investors think they can get enough experience online to get on their feet. In the United States, 41% of Generation Z investors say they use the TikTok social network to access financial information (a credit tree survey in January 2021).

… who believe they can train on their own

This feeling of benefit from good financial knowledge, of course, is not entirely wrong. Many sites dedicated to finance receive interesting information about this sector. Internet users have probably never been so well informed about the movement in the financial markets.

But is this knowledge enough to manage the portfolio and adapt it to the investor profile and the volatility of financial markets? The trend of the last few months and especially the last weeks is testing the nerves of investors.

Falling from 20% to 30% of major global stock indices, falling bonds in similar proportions and the collapse of cryptocurrencies (bitcoin price divided by 3) – all investors have good reason to doubt, especially less experienced or poorly accompanied.

Knowing the basics of how the stock market works is the first positive step, but it is far from enough to optimize your investments and adapt them to financial market trends. According to Philipp Fernbach, a professor at the University of Colorado, “72% of young investors say they are confident in their investment decisions. This overconfidence is dangerous, especially since most of them have taken on debt to invest. »

Behavioral finance research shows that a single investor is more likely to be affected by emotional factors and therefore responsible for irrational actions. Excessive confidence, for example, inevitably leads to underestimation of risk and deviation from the rules of diversification.

Professionals can help these young investors improve their practice

Faced with this situation, there is no doubt that the youngest investors need to be accompanied by financial management professionals. The latter do not like the expression “play in the stock market.” This is contrary to their values. A serious investor does not gamble (with the frivolous idea that he can win or lose); he invests wisely to get the best long-term return

However, this does not mean – unlike what young investors might think – that a professional will encourage them to manage their investments too “plan-plan”. On the contrary! Precisely because he is an expert, he will be able to manage them in a more dynamic management.

In the training form, the specialist will be able to support his client in adopting a controlled risk approach aimed at increasing the profitability of his portfolio. And this, respecting the personal context of the investor: what part of his savings can he place on the stock market? What is his investment horizon for future projects? What is his tolerance for losses? There are so many questions to help determine the strategy you need to implement.

Finally, the expert will also allow his client to counter natural trends in highly volatile markets, which aim to call into question a certain long-term strategy: the fall should not cause a hasty sales reaction!

If the growing interest of young generations in the values ​​of the stock market is a good sign, it seems important to focus them not only on preserving their financial interests, but also on the development of the share of investment in shares in the country’s heritage. French. An important issue is the direction of the savings of our fellow citizens in the economy.