Gen Z investors are "renegade" and "anti-establishment" compared to older investors, entering the market earlier, with a higher risk tolerance, as well as relying heavily on social media for information and trading apps for access to markets.
This is according to a report from research house Hardman & Co’, which highlights how this generation's investing habits differ from older investors in both approach and portfolio composition.
Over half of UK Gen Z, which refers to those aged between 17 and 27, are already investing, compared to just 30% of Gen X, those now aged between 44 and 59.
This early engagement, according to Hardman, is driven by several factors.
"Gen Z has a higher risk tolerance, which may be due to factors such as FOMO and negative feelings about the economic conditions they face," says the Hardman author, which is the firm's 19-year-old intern Senan Skalkos, who is a finance undergraduate student at University College Cork.
This mindset is reflected in their portfolio allocations. Gen Z investors favour alternative assets like cryptocurrency and private equity over traditional investments.
"Young investors who self-identify as conservative tend to allocate 40% of their portfolio to traditional stocks and bonds and a massive 34% to crypto and alternatives," Skalkos found.
This contrasts with older investors, who lean more heavily toward stocks and bonds, with much smaller allocations to crypto.
The report notes that Gen Z’s preference for non-traditional sources of investment information is shaping their habits, as they heavily rely on social media.
For example, during the 'meme stock' craze of 2021, which has erupted again since, informal news sources such as social media and memes influenced many Gen Z investors "more potently than traditional media sources, which tended to report that the event was a speculative bubble and advised caution", the report says.
"Many members of Gen Z prefer the more personal nature of social media posts which come directly from content creators, in contrast to media from large corporations," it adds, noting that a CFA Institute survey found many young investors turn to TikTok (38%), Instagram (44%) and YouTube (60%) where media can be less formal.
Anti-establishment investing styles were also widespread, with many Gen Z investors’ activity in direct opposition to financial institutions, with investment in asset classes which largely lie outside of institutional scope, such as crypto-assets, remaining popular today.
Apps like Trading212, FreeTrade and Robinhood Markets Inc (NASDAQ:HOOD), which offer low-cost entry into the market and fractional shares, "allow not only Gen Z but the generations that follow them to invest earlier with sums of money which are more easily obtainable at a young age", the report says.
For the market, this has profound implications, says the Hardman team, including that companies, investment platforms and investment professionals must engage with the platforms that Gen Z favours if they want to court them.
"To access this demographic, companies and IR professionals will have to engage with the non-traditional avenues heavily used by Gen Z investors," the report said, adding that as Gen Z's financial influence grows, their behaviours will continue to impact market movements and pricing efficiency.
In positive cases, the reporter suggests more involvement from the young retail community could help to lower discounts on shares with high market prices without the need for a stock split.
Or, increased access to markets can exacerbate pricing inefficiencies during times of high volatility and market euphoria, such as how during the pandemic young retail investors invest heavily in assets such as GameStop shares and Dogecoin to follow trends on Reddit (NYSE:RDDT) and TikTok.
Gen Z’s digital upbringing and reliance on social media "will shape how financial information is disseminated in the future," Hardman's young author says.
Traditional institutions are still early in adopting these platforms but if Gen Z’s enthusiasm for crypto and high-risk tolerance persist, these assets and the new ways of disseminating information about them could "become of huge importance to the financial world".