Gen Z Are About To Break Investing
So I was talking the other day with my son about our investments. This conversation quickly turned into a huge debate about our attitudes towards money and it really highlighted the differences between the generation of boomers like me and his generation, Gen Z.
Some of my friends don’t even see the point in having these normal investments anymore when there are new assets that can give them 10x the profit in half the time.
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To be honest, I think Gen Z are gonna break traditional investing. Now this does pose an interesting question. Will this shift towards new trendy investments continue? Or is it just a craze that will slowly die down and be destroyed by regulations?
So let’s dive into this new wave of investing that consists of meme stocks, altcoins, crypto passive income, NFTs, and straight out gambling.
I’m also gonna be sharing my opinions as an experienced investor and how I plan to adapt my investment strategy in response to all of this.
So let’s kick this off with meme stocks which is a one out of five on the risk scale when compared to the others on this list. Don’t get me wrong, they’re all pretty risky.
This investing strategy is not for the weak hearted as it has the ability to make you a millionaire overnight, but could just as easily lose you everything.
It’s the fine art of throwing all your money into one stock that’s currently being spread by social media with the hope that it will rocket in value and go all the way to the moon, fueled by nothing but momentum.
But it’s also a lot more than that, it’s the chance for the everyday investor to band together and take on the rich hedge funds like never before and win big.
Investing in these types of stocks is a lot less intimidating and much easier to do because it doesn’t involve fundamental analysis, which is looking at the company’s balance sheets, cash flow statements, and all of the boring stuff.
As you may remember, all eyes were on GameStop at the beginning of 2021, everyone was talking about it, even boomers like me, and I never even went into the store.
When I was younger, the only thing I had was a cup and ball on a piece of string to keep me entertained. The result of all of this attention was that hedge funds lost nearly $13 billion and retail investors like the broke college dropout, Mike McCaskill, made a cool $25 million.
This sort of situation happens when a stock is heavily shorted, usually by hedge funds. This is kind of like if this apple was selling for $5. A bit expensive, I know, but bear with me.
Let’s say you thought the apple market was going to crash so you asked to borrow my apple and then you go and sell it for $5. But you still owe me an apple back, but as I’m a nice guy, I’ll allow you a bit of time to get me a new one.
In that time, the price of apples goes through the floor. Maybe there’s just too many farmers supplying them and now they’re only worth 1/2 a dollar.
So you would buy back an apple for 50 cents and return it to me. You would then made a profit $4.50 by shorting the apple market. This gives savvy investors an opportunity to exploit.
They can do this by taking part in what is known as a short squeeze. The idea is to club together and invest in a heavily shorted stock, causing it to climb in value.
This will enforce the hedge funds to buy the stock back at a higher price in order to cover their losses. The result of all this is the price just continues to climb. It’s a bit like a snowball, building momentum and growing as it rolls down a hill.
So here’s the bottom line when it comes to meme stocks, they give us a way to fight against the corruption of Wall Street, but they come with risks.
This battle doesn’t seem to be over anytime soon as just months after GameStop, we saw a similar situation with the American cinema chain, AMC. So I’m sure something else is probably just on the horizon.
If you thought all of that was crazy, now it’s time for altcoins which is a two out of five on the risk scale when compared to the others on this list.
Altcoins are very attractive as they offer an opportunity to make a much higher percentage on return than stocks. On the other hand, they also offer much higher risk.
Altcoins are any cryptocurrency that isn’t Bitcoin. And as of 2021, there are thousands of these alternative currencies in existence with hundreds being created daily.
It’s a booming market and a chance for investors to get in at the beginning of something big. Very much reminds me of the .com bubble. Lots of people were investing in .com domain names, but only some of them ended up making their investors rich, like amazon.com.
So if you were able to identify these unicorns, you could make a lot of money. Pro the Doge became a millionaire in just two months when his Dogecoin soared by almost 12x, taken an investment of $180,000 to over 2 million.
But this really is a double-edged sword as it also makes it easier for scammers to steal from you as their promises no longer seem crazy. It’s becoming harder and harder to distinguish the legitimate crypto coins from the scams.
A perfect example of this is the Save the Kids token pump and dump scheme. Members of the FaZe group and some other influencers advertised the coin on their social media, but it all ended up disastrously for the people that invested as the price hit rock bottom.
It’s also important to note Logan Paul has recently created his own coin and called it Dink Doink, which he openly calls a shit coin. Sorry to swear there guys.
It seems like everyone is making a coin nowadays. This is because anyone can create a coin as the crypto market is still relatively new and unregulated.
This kind of pump and dump scheme wouldn’t be legal with stocks. It reminds me of investing in penny stocks when I was younger and the dodgy brokerages that were shown in the Wolf of Wall Street film.
These small coins offer a higher growth potential, but also experience much higher volatility. The rags to riches stories that are born from altcoins are bound to interest new investors ’cause when have only a little bit of money, it makes sense to wanna multiply it as quickly as possible.
One of the most interesting new creations has to be NFTs. This is often referred to as the evolution of fine art collecting and think about how much money is in art!
I once heard about a painting of a white line selling at an art auction for $28 million. Bargain! As crazy as that is, people are selling digital art now and even their social media posts as investments.
Like fine art, people are buying and holding these assets with the hope that they’ll increase in value. What does NFT stand for? Non-fungible tokens.
Like, yeah, that really clears it up, doesn’t it? Non-fungible essentially means that something is unique and can’t be replaced. This is kind of like the Mona Lisa.
It’s hanging in the Louvre Gallery, located in Paris, and everyone agrees is one-of-a-kind. However, they’re sending copies of this painting on key rings, mugs, and even canvases.
But these are worth nowhere near the value of the original. This makes the Mona Lisa non-fungible and one-of-a-kind. Technology has made it possible for us to get this authenticity stamp to any digital asset.
For example, the first tweet ever sent was recently sold for nearly $3 million. And the digital art collection by Beeple was sold for a record breaking $69 million.
You might be thinking, why would anyone be silly enough to buy something you can just screenshot? And the answer is because, well, they’re just silly.
No, I’m just kidding. It’s because they live on the Ethereum blockchain which means these digital assets can only have one official owner at any one time.
The network can modify the record of ownership or copy and paste a new NFT into existence. Therefore, this means much like the Mona Lisa, people can try and make copies, but they’ll never have the original or the value that comes with it.
Crypto changing in value isn’t the only way you can make money from holding digital coins. It’s actually possible to generate passive income in a few other ways.
Our class sees a three out of five on our risk scale. Passive income is the holy grail and dream for most people. I mean, who wouldn’t wanna sit back and relax, watching the money rolling in?
Personally, I’ve always been with the mindset to send my money off to work. As one of the most talented investors of our time, Warren Buffett, famously said, “If you don’t find a way to make money while you sleep you’ll work until you die.”
Lots of people using high yield crypto saving accounts, like BlockFi. These are a lot like your average high interest savings bank account, but instead of giving you a measly note 0.5% interest, BlockFi offers you up to 7.5% for storing your crypto with them.
Other people are choosing to stake their coins. This is essentially locking them up for a period of time and getting paid interest in return. You can do this with Neo, ReddCoin, and Komodo, which will earn you up to 5% APR.
Now you probably never thought this next sentence would come out of my mouth, but here we go, you can now stake CAKE on a place called Pancake Swap and in return, get Bunny.
Interest rates range from 1.2% all the way up to 2479% on the Pancake Swap website. What’s with the crazy names? Well, I would assume that the developers are aiming to make these coins less intimidating for the average investor.
Everyone likes a good pancake, but will it make you financially fat? This is all possible because savings accounts like BlockFi operate like any other bank.
They loan out your money and charge interest and pay you a percentage of it. Currently they’re competing with the big banks so they’re giving more interest away to acquire customers.
Staking your coins is a different beast. When you do this, you essentially become a core part of the network security. You’re then rewarded with coins for helping to run the network.
Long-term hodlers like doing this because they plan to hold the coins anyway. The amount of interest you receive depends on the amount you’re staking, the time you’re staking it for, the inflation rate, and many more factors.
I struggle with people classing this one as a way of investing. It’s just straight out gambling, but I can see that it might be fun to turn cryptocurrency into a game.
This one has to be a five out of five on our risk scale. People are actually taking part in something called the Pancake Swap lottery as well as a new prediction game.
This is very similar to a popular TV show when I was younger called The Price is Right. So come on down and place your bet. No, but seriously, investors are getting so sick of slow stock market returns that they will try anything to secure some quick profit and even gamify investments.
Now I know I’ve only been on this planet for around 25 years, but to this day, I still have not found a get rich quick scheme that actually works.
Do you know what? I think I got away with that. The concept of this prediction game is simple, you place a bet on whether the price of a crypto coin will be up or down in the next five minutes.
Guess correctly and you win some CAKE tokens. Guess incorrectly and you lose all of your investment. I’ve been researching this lottery and collecting opinions on it.
And just as I was coming to the conclusion that this was a complete scam, I found this post on Reddit from someone who says they actually 1/4 of a million dollars worth of CAKE token.
If they ever managed to redeem this for real dollars is another story. With the wealth gap growing, I understand why some people are impatient and would rather risk it all for a shot at winning big and changing their life.
I also think some others are just doing this for fun and I guess the bottom line here is if you choose to take part, only bet what you can afford to lose.
So after looking at all of these points, are the younger generation on the cusp of breaking traditional investing? As far as meme stocks go, I’m all for supporting the social movement by holding the hedge funds accountable.
But I would only use my fun money to get involved with this which is only 1% of my portfolio, but you can be sure, if I jump in, I’ll be diamond handing those stocks all the way to the moon.
With the majority of my money, I much prefer following a long-term strategy, consisting of index funds and individual stocks.
My opinion on altcoins is conflicted. As I said, this is such a big market and there are loads of different coins. Some seem like great investments while others, they’re just scams.
It’s essentially a minefield and I wouldn’t wanna target them all with the same brush. I’m already hodling Ethereum and a small amount of Cardano, but I just don’t think the market is regulated enough for me to jump in any deeper, as I don’t have the time to sort through all these different coins checking for scams.
NFTs look interesting and are probably going to be adopted by Gen Z as they grew up with the internet and therefore, are most likely to value digital assets.
But for me, and I know it might sound a bit of a boomer opinion, I like to actually appreciate a physical object. If an NFT comes up that I can’t resist, then I might be persuaded to invest.
However, I must admit I am a little on the fence. It seems like the initial hype has died down a little, but then again, that happened to Bitcoin.
I initially wasn’t keen on the idea of crypto passive income as you have to store your coins with someone else and as the old saying goes, well, I say old, maybe not as old as me, “Not your keys, not your crypto.”
But saying this, I’ve been holding one of my Bitcoins in BlockFi and earning 4.5% interest and it seems to be going very well so far. As far as staking goes, as I said, I’m not fully jumping into altcoins so this doesn’t really make sense for me.
Now for gambling, if I ever gamble my money, which is very rare, I want to have the experience of going to the casino, just like James Bond, with a limited amount of cash, though, in my wallet and enjoying the real life interaction.
So this one is a straight no for me. So overall, my opinion is that Gen Z’s might be having a little bit of fun and I admit these investments could supplement a diversified portfolio.
However, they can’t compete with long-term wealth building as traditional investments are backed by years of historical performance data.
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