Study: How Gen Z and Millennial Investors Think About Risk

Meme stocks and cryptocurrency have been on a wild ride this year and have raised a lot of questions about how Gen Z and millennial investors think about risk.

We decided to dig deeper into how investors from those generations view risk in the stock market.

In April 2021, The Motley Fool surveyed 1,400 American stock investors aged 18 to 40 about their views on risk.

We found that Gen Z and millennial investors overall are acutely aware of risk associated with investing, but their views on how risky certain products and assets are don't always align. There's also some evidence that Gen Z and millennial investors may be uncomfortable with holding investments through losses.

Key findings

Risk is top of mind: 95% of Gen Z and millennial investors think about risk when investing.
Generational split on crypto risk: Gen Z sees cryptocurrency as a less risky investment than stocks and options. Millennials view cryptocurrency as the riskiest investment.
More promise in more stocks: 25% of Gen Z and millennial investors are invested in 5–10 stocks, but 64% believe a strong portfolio should be composed of 10 or more stocks.
Risk management: 48% of Gen Z and millennial investors wouldn't have to make any changes to their day-to-day finances if they lost all of their investments.
Riding out the dip: 10% of Gen Z and millennial investors would start feeling uncomfortable if their portfolio went down any amount. Only 8% wouldn't be phased by any level of loss.

95% of Gen Z and millennial investors think about risk

95% of Gen Z and millennial investors think about risk when investing. 23% think about risk a little when investing, 38% think about it some, and 34% think about it a lot.

Males are less likely than females to think about risk -- 7% of Gen Z and millennial male investors don't think about risk at all when investing compared to 3% of females. Young female investors are also more likely to think about risk a lot compared to their male counterparts.

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How much do you think about risk when investing?	Gen Z	Millennials	Male	Female	Total
I don't think about risk at all when investing	6%	5%	7%	3%	5%
I think about risk a little when investing	25%	23%	24%	22%	23%
I think about risk some when investing	38%	38%	37%	38%	38%
I think about risk a lot when investing	30%	34%	31%	37%	34%

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We're pleased to see that such a high percentage of young investors keep risk in mind when investing. Risk-free investing doesn't exist and being aware of the fact that investments are exposed to risk is an important step toward financial success.

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alt — Column chart showing how much Gen Z and millennial investors think about risk when investing

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The Motley Fool has a primer to help investors better understand different types of risks and strategies for managing and minimizing risk.

Gen Z views cryptocurrency as a less risky investment than stocks or options

Overall, Gen Z and millennials judged cryptocurrency to be the riskiest investment and bonds to be the least risky investment.

They said that stocks are the second riskiest investment, followed by options and IPO shares. Mutual funds, index funds, and ETFs rounded out the least risky investments.

Gen Z, however, ranked cryptocurrency as a less risky investment than stocks, options, and IPO shares. Millennials said cryptocurrency is the riskiest investment.

Crypto assets are relatively new, and investors should be aware of their unique risks and upside.

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Investments ranked in order of stability (1 is least stable, 10 is most stable)	Gen Z	Millennials	Total
Cryptocurrency	5.54	4.34	4.46
Stocks	4.85	4.88	4.86
Options	5.19	5.01	5.04
IPO shares	5.50	5.30	5.31
ETFs	5.65	6.01	5.85
Index funds	6.34	6.23	6.24
Mutual funds	5.78	6.46	6.40
Bonds	6.15	6.93	6.84

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These findings are in line with previous research from Motley Fool Money, which found that members of Gen Z were more likely to own cryptocurrency than millennials.

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Which of the following types of investments do you own?	Gen Z (ages 18–24)	Millennials (ages 25–40)	All investors aged 18–40
Stocks	73%	66%	67%
Mutual funds	35%	47%	45%
Cryptocurrency	47%	39%	40%
Bonds	30%	35%	34%
Stock options	39%	30%	31%
Index funds	22%	25%	24%
ETFs	15%	23%	22%
Fractional shares	16%	22%	21%
IPO shares	13%	14%	14%
Other	1%	2%	2%

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In general, young investors are invested in fewer stocks than they think they should be

35% of Gen Z and millennial investors are invested in 1–5 companies or funds and 25% are invested in 5–10. But just 15% think a high-performing portfolio is composed of 1–5 companies or funds and 19% believe 5-10 companies are necessary for such a portfolio.

The majority of Gen Z and millennial investors believe a high-performing portfolio should be composed of 10 or more stocks or funds, with most suggesting 10–20 stocks. At the moment, however, most Gen Z and millennial investors are invested in 10 or fewer companies or funds.

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Number of companies/funds	How many companies/funds do you own stock in?	How many companies/funds do you think you should own stock in to have a high-performing portfolio?
1–5	34.80%	15.30%
5–10	25.35%	19.48%
10–15	16.41%	22.66%
15–20	11.65%	18.61%
25–30	5.93%	12.41%
31 or more	5.86%	11.54%

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Being invested in more companies and funds is one way to diversify your portfolio and mitigate risk, so long as your portfolio is composed of investments in different sectors and companies of different sizes.

The Motley Fool recommends building a portfolio of 25 or more stocks and has put together a handy investment starter kit that lays out foundational investing principles, including diversification. (As can be seen in average net worth by age statistics, though, younger investors have less money to work with, and we understand that -- 25 can be a longer-term goal for investors early in the journey.)

Over a third of young investors would need to cut down on discretionary spending if they lost all their investments

36% of young investors would need to cut down discretionary spending and 16% would have trouble paying bills if they lost all the money they have invested in the stock market.

48% of Gen Z and millennial investors wouldn't have to make any changes to their day-to-day finances if they lost all their investments in the stock market.

Millennials were less likely than members of Gen Z to need to make changes if their investments completely failed. Females were also less likely than males to need to make changes.

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If you lost all the money you currently have invested in the stock market tomorrow, how would it affect your day-to-day finances?	Gen Z	Millennials	Male	Female	Total
I'd have trouble paying my bills	23%	15%	19%	13%	16%
I'd have to cut down discretionary spending	35%	36%	37%	35%	36%
I wouldn't have to make any changes	43%	49%	45%	51%	48%

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The Motley Fool recommends only investing money that you won't need for at least five years. If your day-to-day finances are impacted by losing money in the market, you're taking on too much risk.

30% of Gen Z and millennial investors trade stocks at least once a week

10% of Gen Z and millennial investors make a trade on the stock market every day, while 20% trade once a week.

The other 70% of our respondents trade less frequently: 23% trade two or three times a month, 18% trade once a month, and 29% trade once every 3 or more months.

Gen Z investors tend to trade with more frequency than millennial investors, and male investors average more frequent trades than females.

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How active are you in the stock market?	Gen Z	Millennials	Male	Female	Total
I make a trade every day	12%	9%	14%	5%	10%
I make a trade once a week	28%	19%	24%	15%	20%
I make a trade 2 or 3 times a month	19%	18%	24%	22%	23%
I make a trade once a month	23%	23%	18%	18%	18%
I make a trade once every 3 months or more	18%	30%	20%	39%	29%

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While trading frequently could be a sign of consistent buying, regardless of market conditions, it could also be a sign of regular selling or a combination of both.

The Motley Fool recommends consistently investing while holding stocks for at least 5 years. In other words, buying when you can and holding for the long term.

This approach can make market volatility work for you and mitigate risk. After all, it's impossible to know what the price of a stock may be tomorrow or next week, but investing consistently in strong companies and holding for the long-term will allow you to ride out short-term dips to benefit from long-term gains.

10% of young investors would start feeling uncomfortable if their portfolio went down any amount

10% of Gen Z and millennial investors would start feeling uncomfortable if the value of their portfolio declined by any amount. 21% would feel uncomfortable with losses of 10%, 31% would feel uncomfortable with losses of 20%, and 30% would feel uncomfortable with losses of 30% or more.

8% are comfortable with any amount of losses.

Gen Z investors tend to be less comfortable with losses than millennials, despite their greater interest in relatively volatile assets, like cryptocurrency, and those that carry greater risk than stocks, like options.

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At what point would you start feeling uncomfortable with your losses?	Gen Z	Millennials	Male	Female	Total
If my portfolio went down at all	13%	10%	10%	10%	10%
If my portfolio went down 10%	26%	20%	20%	21%	21%
If my portfolio went down 20%	32%	31%	30%	32%	31%
If my portfolio went down 30% or more	24%	31%	31%	30%	30%
I'm fine with any amount of losses	5%	9%	9%	7%	8%

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Gen Z and millennial investors think about risk, but still engage in some risky investing behaviors

Most young investors are mindful of risk when investing, which is an important and positive finding. Acknowledging that investing comes with risk is fundamental to success.

That young investors lean toward believing larger portfolios perform better is another positive finding. Larger portfolios provide opportunities for diversification, which can mitigate risk and set you up for long-term success.

It is a bit concerning that 52% of Gen Z and millennial investors would need to make changes to their day-to-day finances if they lost all the money they have invested. Knowing how much you can afford to invest and budgeting for unexpected expenses is key to long-term success.

Gen Z and millennials are also trading stocks fairly regularly -- Gen Z more so than millennials. While this could signal consistent buying -- a tenet of Motley Fool investing principles and a way to make volatility work for you in the long-term -- it could also suggest selling with some regularity.

Buying regularly and holding for at least five years -- through dips and dives in the market -- is Foolish investing at its core, and has proven successful for investors from all walks of life.

Methodology

The Motley Fool distributed this survey to 1,400 American adult stock investors via Pollfish on April 19, 2021.

Respondents were 49% female and 51% male.

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About the Author

Jack Caporal is the Research Director for The Motley Fool and The Motley Fool Money. His work focuses on uncovering and analyzing trends that shape personal financial decisions across the United States, to help people become smarter, happier, and richer. Jack's primary research has been featured across top-tier television networks, and accredited publications like the New York Times, Bloomberg, CNBC, and has been cited in Congressional testimony. He previously followed business and economic trends as a reporter and policy analyst in Washington, D.C. Jack enjoys spending time in the mountains and cheering for his hometown Boston sports teams.

TMFJackCap

The Motley Fool has a disclosure policy.

Study: How Gen Z and Millennial Investors Think About Risk

Gen Z and millennial investors have a reputation for risky investments, but is it warranted?

Key findings

95% of Gen Z and millennial investors think about risk

Gen Z views cryptocurrency as a less risky investment than stocks or options

In general, young investors are invested in fewer stocks than they think they should be

Over a third of young investors would need to cut down on discretionary spending if they lost all their investments

30% of Gen Z and millennial investors trade stocks at least once a week

10% of young investors would start feeling uncomfortable if their portfolio went down any amount

Gen Z and millennial investors think about risk, but still engage in some risky investing behaviors

Methodology

About the Author

Premium Investing Services

Key findings

95% of Gen Z and millennial investors think about risk

Gen Z views cryptocurrency as a less risky investment than stocks or options

In general, young investors are invested in fewer stocks than they think they should be

Over a third of young investors would need to cut down on discretionary spending if they lost all their investments

30% of Gen Z and millennial investors trade stocks at least once a week

10% of young investors would start feeling uncomfortable if their portfolio went down any amount

Gen Z and millennial investors think about risk, but still engage in some risky investing behaviors

Methodology