Higher-risk and more patience
Times have changed when it comes to investing.
While there used to be more conventional ways of investing your money, now there are more personal approaches that dictate how you handle your wealth.
Candice Dziedziejko, an investment advisor with BMO Nesbitt Burns, observes that now, it’s about looking at an individual's investment interests and what their risk tolerance is.
“Younger generations, they tend to be more comfortable with this volatility,” she observes.
This ability to ride out the valleys of the market leads to Gen Z seeing greater returns in the long run. “By staying invested, as long as you have great investments, you tend to reap the benefits throughout that volatility by holding on.”
Dziedziejko notes that when the market is volatile, Gen Xers are “more concerned and want to sell out their portfolio.”
Countering this, Gen Z “tend[s] to continue to stick to their plan and invest through that volatility as well as take it as an opportunity or a tool to add more to their portfolio.”
McDonald echoes this feeling. He observes “the Gen Xers… they're about to become the beneficiaries of the largest transfer of wealth in the history of the world.” This awareness affects their approaches to investing. “I wouldn't say they're risk averse. But I think it's still controlled risk.”
Different ages, different worries
Part of the reason for Gen Z’s greater risk tolerance may be due to teachings from older generations. Dziedziejko theorizes that younger investors may grow up hearing about the market’s volatility from other people directly or from the media.
From Dziediziejko’s personal experience, even millennial investors are showing less risk tolerance in recent years. She suggests this may be due to their feeling they have less time to invest before retirement.
Gen X in particular may feel like they have a shorter window of opportunity, which will lead to less risk tolerance.
“And they feel as though they're less comfortable as retirement approaches with this volatility, where they really could learn from the younger generations by just investing through the volatility and being rewarded more handsomely in time.”
Think differently for bigger payoffs
Changes to traditional approaches to finances are part of everyday life for Gen Z.
McDonald says that looking beyond convention ”goes to the very core of what [Gen Z’ers] are. A little bit more risk taking… I think it's forming those biases that should be malleable, rather than being a permanent state.”
Disruption is a symptom of the gig economy that permeates Gen Z’s lives. “Disruption” refers to changes in the traditional way of doing business, such as the way Airbnb added new competition for hotels.
“There's lots of choices,” notes McDonald, adding that disruption “is like a permanent thing that's occurring.”
“Look at what you're doing, or when you look at an opportunity, can it be disrupted?” advises McDonald. “Can you double down and reinvest in it?”
McDonald notes that Gen Z is still interested in traditional companies to invest in, but also want to explore alternative avenues. For instance, in Q4 2021, Tesla was the top stock held by gen Z’ers, while shares in companies like Roblox and Meta Platforms Inc. rose in popularity.
Pay attention to the world around you and ask questions
“There is value in listening,” says McDonald. “I love interacting with Gen Z's for that.”
Gen Z has grown up with technology and change all around them, and have come to embrace a certain healthy paranoia.
McDonald recognizes this, commenting that “understanding innovation, and the fact that innovation is very important” is key to recognizing investment opportunities, such as the rise of Uber.
“You don't want to become obsolete.”
When it comes to investing, Dziedziejko observes that “the savviness of these individuals is much more elevated than I had seen years ago.”
“Be it due to social media, be it due to information being more transparent from a global perspective through our news outlets, or just their level of interest. But I would say they tend to ask more thoughtful questions and have a better general understanding of investing, even just walking through the door.”
Gen Z offers a fresh perspective on investing. By taking cues from their habits and listening to their insights, you can revise your own investment strategy and refresh your portfolio — creating new opportunities for financial growth.
Fine art as an investment
Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.
That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.
Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.
And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.
On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.
Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.
Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.