How Different Generations Are Responding to Volatile Markets

It is that dreaded time of the stock market cycle when the markets experience prolonged declines and investors see their portfolios turn red, or in other words, a bear market.

This is not bad news for everyone. This decline offers young investors an opportunity to buy stocks at a reduced price and then hold them for the long term, if they play it right. For those with more financial responsibilities or who are nearing retirement, it can be a scary time to be heavily invested in the stock market.

The situation is compounded by skyrocketing prices, which are sending consumers scrambling for liquid cash to fulfill their basic needs.

An Israel-based fintech company, TipRanks, has studied the buy and sell transactions of more than half-a-million investors who use TipRanks’ flagship Smart Portfolio to analyze their personal stock portfolios.

Different Age Groups, Different Coping Trends

Different age groups have different risk appetites and financial burdens. To understand the trend better, TipRanks examined how four different generations, Baby Boomers, Gen X, Millennials, and Gen Z, are managing their positions in the stock market.

Most Popular Trading Patterns

Interestingly, Apple (AAPL) is the most popular stock to buy, among each of the four generations.

Apple is also the most sold stock among Gen X and Millennials. The most sold stock among Baby Boomers is Verizon (VZ), and among Gen Z it’s Invesco QQQ Trust (QQQ), one of the world’s largest exchange-traded funds (ETF) tracking the tech-heavy Nasdaq-100 companies.

Baby Boomers — The Most Risk-Averse Group

Typically, people born between 1946 and 1964 are classified as Baby Boomers, which makes them between the ages of 58 and 76, currently. The significance of losing money in a bear market is much more pronounced for this age group, as their lifetime investments are likely being utilized to lead a comfortable post-retirement lifestyle.

The TipRanks Smart Portfolio revealed that between the start of January and the start of June 2022, Baby Boomers sold stocks at a greater rate than they bought them. And why not? When there is fear of an economic downturn, the first reaction of many Baby Boomers is to escape the stock market. That’s especially the case because they also must consider inflated prices for basic expenditures, while receiving hardly any active stream of income.

TipRanks discovered that Baby Boomers are selling more dividend stocks than non-dividend ones, possibly because the latter have better chances of a quicker stock appreciation than the stocks of companies that pay dividends.

Gen X — Most Active Cohort

Born between 1965 and 1980, Gen X is probably the most financially burdened. This group encompasses people building their careers, raising young families, paying off loans, building their own homes, and paying for childcare and school.

On top of this, Gen X is caught with their investments fast losing value, alongside rising prices and interest rates on loans. This group is the most active group of investors, even though it is selling slightly more than it is buying.

Many of the investors in this group can afford to leave their investments to grow again before they retire. It is highly possible that Gen X’s stock market activities reflect an internal shift of investments from riskier stocks to safer bets.

Millennials — Too Young to Play Safe, Too Old for Big Risks

Caught in between taking risks and playing safe are Millennials, who were born between 1981 and 1996. The younger Millennials are fresh into the investing world, and a large chunk of them is unmarried, career-oriented, and paying off student loans.

With new financial goals and a desire for a comfortable future, many Millennials are treating the bear market as an opportunity to increase their positions in stocks. Most Millennials still have a meaningful time horizon before they retire, and that gives them the sense of security to buy more.

This conforms with the data extracted by TipRanks, which revealed that Millennials are buying more than they are letting go of. According to TipRanks data, there are about two Buy transactions for every stock sold.

Gen Z — the Truest Contrarians

Gen is made up of youth born between 1997 and 2012. So, a good part of this cohort consists of students. Those who invest are just starting their careers and are often the least burdened financially.

This is the second time that some of them are facing the bear market, the first time having been in 2020, and they are not shaken.

TipRanks found that Gen Z investors are buying significantly more than they are selling; five Buys for every Sell on average, to be precise. Additionally, some TipRanks discovered some more interesting trends in this group.

Gen Z’ers are learning the nuances of investing and trading, which explains why TipRanks’ Smart Portfolio activities indicated that Gen Z is being most influenced by discussions on the subreddit Wall Street Bets, which gave birth to trends like meme stocks.

Interestingly, Gen Z is also the only investor cohort engaging in the Invesco QQQ Trust (QQQ), one of the world’s largest exchange-traded funds (ETF) tracking the tech-heavy Nasdaq-100 companies.

Not only that, Gen Z’ers are selling this fund during the current bear market. This trend could reflect the severe underperformance of the Nasdaq 100 stocks, or the new rule (made in 2020) that suggests that the fund will expire when its last security matures, is redeemed or is sold.

Likewise, Gen Z is selling Cathie Wood’s ARK Fintech Innovation ETF (ARKF), possibly because of its high exposure (55.27%) to the underperforming tech sector.

The current trend might not be the only catalyst driving Gen Z out of these tech-heavy funds, as high interest rates are going to weigh heavily on tech stocks for some time.

At the same time, this generation is not completely averse to technology. Gen Z’ers are buying significant amounts of shares of telecom media and technology giant AT&T (T), possibly influenced by a significant number of discussions on the company on Reddit.

How Do These Observations Help You?

The bear market calls for making careful choices when making investment decisions. Platforms like TipRanks are helping educate investors about how to choose the right stocks to invest in or to avoid during the downturn. 

Those in the investing game for the longer term are buying more than they are selling, while those whose time to reap their harvest is drawing close, have been selling more.

To sum it up, staying in the stock market or exiting depends purely on risk appetite, which decreases as age increases. Therefore, studying the investment patterns of different generations during the bear market clears a lot of questions about how to act your age when it comes to investing.

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