Twenty-something Canadians are investing earlier and more aggressively than previous generations. Are they at risk of being scarred for life?
Nearly three-quarters, or 74 per cent, of Canadian Gen Zs surveyed reported holding at least one investment. This is markedly higher than U.S. Gen Zs at 56 per cent. But the most likely held investment was crypto with 57 per cent of Canadian Gen Z investors reporting that they held some form of cryptocurrency. Mutual fund ownership was second at 45 per cent, followed by individual stocks at 41 per cent.
These are just some of the stats contained in a joint study put out by the FINRA Investor Education Foundation (a U.S.-based organization) and the CFA Institute last year. Coupled with focus groups on younger, non-white investors in the U.S., two overarching themes that have emerged are that the next generation of investors relies heavily on social media for information and also ends up speculating heavily in cryptocurrency and meme stocks.
The results are exacerbated for non-white investors, who are now entering capital markets at a much higher rate than white investors. So, on the one hand, financial inclusion is increasing. Capital markets are becoming more accessible to younger and non-white investors. On the other hand, there could be more investment mistakes being made.
Ninety per cent of Canadian Gen Zs feel their overall financial situation causes financial anxiety. That’s no surprise. The prospects of potentially never being able to buy a home in Canada’s big cities, growing up witnessing a narrative of Wall Street’s risk-taking being subsidized by Main Street, student debt, and the precarity of gig work all add up to a desire to find any way to try and get ahead.
With the barriers to entry having been reduced by fin techs that have driven investment minimums to near-zero through low account funding requirements and fractional share trading, add a little grift on social media and the recipe for increased speculative behaviour is no surprise.
I recently wrote about a study that found that low minimum investment requirements could actually anchor new investors to contributing too little to their portfolios over time. But other gamification techniques may also contribute to speculative behaviours.
One young investor in a focus group noted that her trading app offered a free stock for signing up for an account. “I think I got a weird pharmaceutical one, and then that put me into a weird hole of looking for clean energy or something, I think,” she said.
A potential silver lining is that we may just be seeing a shift of the “on-ramps” to life-long investing. Whereas before, exposure to a workplace-sponsored retirement program may have sparked more initial interest in personal investing, now the combined effect of social-media influence and the gamification of investment platforms has sparked those investing journeys into starting earlier.
My own investing journey started well before I knew anything about investing. After I got my first paycheque from a job at McDonald’s as a teenager, my father took me to the bank to set up a bi-weekly contribution to an investment. I had to pick the investment, and I just looked up the last year’s best performing fund. It was a natural-resources fund with a triple-digit gain.
I had committed a few glaring investing sins: return chasing and not diversifying being the two biggest. It took me years to even learn the basics, such as understanding the power of asset allocation and rebalancing, among many other important lessons. Over time, it started to all make sense.
It would be delusional to think we can teach new investors all the mistakes to avoid, but there are some that we need to highlight because they are outsized in terms of potential harm. Leverage, trading on margin, and derivatives possibly shouldn’t even be allowed when you start. As it stands, it’s just too easy to fill out forms without knowing if the applicant even understands what they are agreeing to.
But beyond leveraged products, anything that suggests a get-rich-quick element is one of the biggest warning signs there is that danger lies ahead. And combined, both of these can boil down to truly understanding one of the most fundamental principles of investing: the relationship between risk and return. As it stands, it feels like a lesson doomed to be learned the hard way for far too many.
Every investor starts somewhere. It’s actually pretty rare for someone to end up investing the same way they started. And that’s not to say that everyone ends up a successful investor, but more to say that everyone follows a changing path when it comes to investing.
The key is if, and how fast, you learn the big, avoidable mistakes. To a certain extent, making mistakes when the stakes are comparatively low can be beneficial. But in some cases, they can scare an investor away from capital markets or away from an appropriate level of savings or exposure to risk at all.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
