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Every generation has to learn financial lessons in its own way, and these are influenced by a variety of economic factors and social trends. But Gen Z may be the first generation to actually make investment decisions based on something their parents and grandparents didn’t: social media.
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According to a recent economic report, Gen Z places a high value on the influence of social media when making investment decisions. This can lead to FOMO (fear of missing out) and risky propositions that could cause Gen Z to lose the money they managed to earn in their youth.
Experts say Gen Z has a proven strategy for investing rather than jumping on hot social media trends, considering they have a much longer time horizon and can take somewhat greater risks than older generations. Describe the strategies you have used.
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invest early
Gen Z is looking for the ability to start early and take advantage of compound interest over time, said David Blaine, a certified financial analyst (CFA) at BlueSky Wealth Advisors.
“Even a small amount has the potential to grow significantly over time. This is a concept I stress to all young investors,” Blaine said. “This principle was clearly explained when we discussed the benefits of saving $25 a week, and that such small, consistent investments are much more time consuming than chasing the latest investments trending on social media. It shows that over time you can build a bigger nest egg and provide a more stable and secure financial future.”
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Fixed amount investment
Second, Blaine said a “dollar-cost averaging” strategy can significantly reduce the risk of market timing, which he called “a common trap for inexperienced investors.”
“By investing a fixed amount on a regular basis, regardless of market conditions, you can reduce your average cost per share over time. This is an important strategy in an often uncertain investment environment.
Please do your research
Sharing important lessons learned from his military career, Blaine said that “facing the world boldly, not blindly” applies to investing, adding, “This is the same as blindly following recommendations. “It means doing thorough research and due diligence before making an investment decision,” he added. Found it on social media. ”
He said a well-thought-out plan based on clear goals and risk tolerance is essential for long-term investment success.
avoid immediate victory
Blaine urges Gen Z to avoid the “temptations of quick wins that are glorified and often exaggerated on social media” and instead invest in solid, proven investments like early savings, a diversified portfolio, and regular investing. He encouraged us to focus on principles.
“[A] A disciplined investment approach based on knowledge and careful planning will always outperform the erratic fluctuations of social media trends. ”
establish good credit
Gen Z is also the right age group to build good credit, said Diane Bourdeaux, certified financial planner (CFP) and president of Humphreys Group.
“Building good credit is very important because your credit score determines your eligibility for everything from buying a new home to taking out a business loan. A tip for maintaining your credit score is to always check your credit card charges. Pay your amounts on time and keep your outstanding balance below 30% of your credit limit.”
overprepare for retirement
Bourdeaux said Gen Z should save one year’s salary for retirement rather than spending money on flashy investments, adding, “I think Gen Z and Millennials can learn something from previous generations. “If you do, that’s over-preparing when it comes to retirement planning.” “If your employer doesn’t offer a retirement plan, it’s your responsibility to open an IRA or 401k, both of which allow you to invest your retirement funds.”
Establish a rainy day fund
Also known as an emergency fund, Bourdeaux urged Gen Z to start saving this kind of money now. “If an emergency arises, are you ready?” she asked. “No one can predict when an emergency will strike, but you can prepare for the worst. Whether it’s your car breaking down or a global pandemic, you can save money on a rainy day. If you have the funds, you won’t be completely caught off guard.”
Understand that money is a tool
Money is important, but at the end of the day, it’s just a tool, Bourdo acknowledged. “It’s important to understand the value of money, to be smart about how you spend it, to think about the future as much as the present, but not to let money dictate your life,” she says. says.
eliminate consumer debt
Another smart move Gen Z can take instead of risky investments is to try to avoid consumer debt, according to Bourdo.
“We understand that you’re likely to have some debt in your 30s, from student loans to personal business loans, but consumer loans should be a thing of the past,” says Bourdo.
“By the time you’re 30, you should be able to budget and live within your means. If you can’t afford a luxury car, you shouldn’t buy a luxury car. To pay for a trip to Cabo. I can’t afford a trip to Cabo if I have to get a new credit card.”
Gen Z is ready to make smart decisions if they listen to financial experts and avoid the seemingly hot trends and bad advice that trickle down to social media.
GOBankingRates Details
This article originally appeared on GOBankingRates.com: What threatens Gen Z’s ability to invest and easy ways to avoid it
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