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The incredible performance in the stock market following the coronavirus selloff has enticed new investors.
For many, the gains have been just too good to pass up.
Christian Nassif, 24, of Cedar Rapids, Iowa, is one such investor. Nassif, who drives for both DoorDash and Grubhub, previously traded cryptocurrency in 2015, he said, but hadn’t put any money into stocks until this year.
In January, he started to invest in stocks through a Robinhood account, with the hopes of making enough to open a vintage store with some friends.
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“There was a buzz around investing,” he said. “And then you look and start researching and see that there’s a lot of industries that have been totally murdered by coronavirus that are inevitably going to come back.”
Today, he said the account has grown to more than $70,000. Given his success, he’s continued to invest with the goal of making even more money. He monitors his account and trades every day, he said, and is invested mostly in airline stocks.
Many factors spurred the influx of new retail investors, including stimulus checks, the ability to save during pandemic lockdowns that curbed activities and the availability of free or low-cost trading. In addition, the performance of so-called meme stocks driven in part by investors from r/WallStreetBets, a popular Reddit thread, and growth of cryptocurrencies such as dogecoin piqued interest for some.
“I’m finding that younger people have started to build up pretty big savings in cash,” said Jeff Mattonelli, a certified financial planner and advisor at Van Leeuwen & Company in Princeton, New Jersey. “And now they’re interested in what they should be doing with that cash, or how they can look to grow that money, recognizing that inflation is starting to rise.”
Josephine Ledda, 30, decided in January to invest in ethereum. Ledda, a community nutrition worker in New York City, had heard friends talk about the crypto and had some extra money to invest from federal stimulus payments.
Ethereum also appealed to her because she could invest a small amount of money to start, she said, which is different from traditional investing where it’s often advised to start with thousands of dollars.
“When am I going to have $5,000 just to invest?” she said, adding that she’s built up her emergency savings fund and has a 403(b) through work. “Somewhere between my student debt and my dreams, I’m here.”
She started with $50, she said. Once she saw that grow, she decided to invest a larger chunk — $1,000 — for the long-term.
There’s also been a shift in the advice of some financial advisors, who’ve embraced the younger generation and some of their investing favorites, such as cryptocurrencies.
Steve Deppe, president and portfolio manager of Nerad + Deppe Wealth Management in La Jolla, California, was not a fan of cryptocurrencies in its earlier days, he said. But when bitcoin began to climb in the fourth quarter of 2020 and retest its then all-time high, he decided to take another look. In early 2021, he started putting money into cryptocurrency for himself and his clients.
“We felt like we needed exposure to something that was generating such substantial outperformance relative to traditional asset categories,” he said, adding that for most clients, the total allocation to crypto is between 2% and 5%.
He’s also seen that younger clients are more interested in and more likely to hold cryptocurrencies, meaning it’s more important than ever that he understand how to advise them.
“Of our clients in their 40s, 30s and even some of them in their 20s, the children of existing clients, 50% to 75% of them have an allocation to crypto,” he said.
A way to start on the right path
To be sure, investing shouldn’t come at the cost of other financial goals such as building emergency savings and putting away for retirement, according to Judson Meinhart, CFP, manager of financial planning at Parsec Financial in Winston-Salem, North Carolina.
“After that, then you can kind of get into if you want to play the stock market or be a little bit speculative,” he said. “It’s all right to carve out a bit of your savings to do that, but it’s really a long-term game.”
He recommends 5% to 10% of one’s portfolio for such investing with the rest in less risky long-term assets such as mutual funds.
One thing that Mattonelli has seen is that new investors who’ve made a lot of money in more speculative assets, such as meme stocks or crypto, often look to become more conservative once they see the amount grow.
“People become a bit more conservative, in general, because they understand that if this doesn’t work out, I’m going to be in potentially some financial trouble,” he said. Then, there is an opportunity to help younger investors take a step back and build a more diversified portfolio that fits into their long-term goals, he said.
Benefits of starting early
One of the best reasons to start investing early is to learn the ins and outs of the market and make mistakes while there’s still time to recover.
“I think young investors can’t do any wrong investing money,” said Deppe. “When you’re young and you do have time on your side, the sooner you can invest the better.”
Having some early losses can help people find their preferred risk tolerance, learn that they can’t time the market and that they’re playing against professionals, added Meinhart. That can be a benefit in the long run.
“The fact that they’re looking at saving and investing and taking a greater interest in their future is awesome,” he said. “It’s just a matter of doing it in a prudent and responsible way and knowing it is a long-term thing.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.