More Young Americans Are Investing. Here's How to Build Wealth if You're One of Them

More Americans than ever before own stocks in their brokerage and retirement accounts. Driving this upswing is a more diverse and engaged group of investors from different socioeconomic backgrounds. The percentage of traditionally underrepresented groups (including younger and lower-income Americans) investing in stocks has increased dramatically in the last 10 years. What is driving this trend and how can new investors make the most of their time in the market? Read on to find out.

Two key factors

While there are many reasons for the increase in stock market participation, two major drivers hit close to home for millennials and Gen Z. First is the recent ease of investing, thanks to changes to the traditional broker model. Second is the de-stigmatization of talking about money.

Investing in the market used to look a lot different than it does now. Only after brokerage apps such as Robinhood, Webull, and eToro arrived on the scene did trading become, well, fun. Even more impactful, Robinhood pioneered the zero-commission trading model, forcing competitors to drop fees too, or risk losing market share. Suddenly, investing became flashy, fast, and free.

The ways that Americans discuss their finances has shifted, too. Money talk has gone from taboo to trendy on social media, with terms like "loud budgeting" becoming popular as TikTok users share their finances to their feed. And these online trends have sparked conversations offline, too, among families, friends, and coworkers.

Avoid these mistakes

As a new investor, it isn't always easy to identify hazards when putting your money to work. However, a healthy sense of skepticism is a great place to start when considering who you listen to and where you put your money. And while mistakes that cost you financially are bad, mistakes that turn you off from investing altogether are much worse.

While much of the money conversation on social media can be informative and helpful, it can't all be trusted. After all, everyone's financial situation is different, so advice that might be great for one person (or 500,000 people) might actually harm you. Unfortunately, some "finfluencers" don't have your best interests in mind, and may be pitching life insurance or investments that are not suitable for you. Always confirm with multiple trustworthy sources before taking financial advice you find online.

You've likely heard the advice about not keeping all of your eggs in one basket. The same holds true for putting all of your investments in one stock or cryptocurrency. This so-called single-stock exposure adds enormous risk to your investments and resulting rapid swings in value can be difficult to stomach. If your savings are tied up in a single investment, your entire portfolio could go belly up along with the stock or currency you're investing in.

Wealth building 101

With long-term investing, the best advice is the boring advice. One of the keys to building long term wealth is to save on a consistent basis. By putting regular amounts of money into the market with every paycheck, you can ride the highs and lows of the market over time by dollar-cost averaging. And saving on a regular basis, such as through a direct deposit into a brokerage account, can let you "set it and forget it" when it comes to saving for retirement.

The opposite of single-stock exposure risk discussed above is diversification. By investing in a risk-appropriate portfolio of investments including companies of different sizes and in different sectors, you can insulate your savings from any one bad investment. Through mutual funds or exchange-traded funds (ETFs), you can diversify your investments into some of the largest indices in the stock market.

Young Americans are increasingly being driven to invest, as the barriers to entry are lowered and the hype grows. For newer investors, it is important to avoid single stock (or cryptocurrency) exposure and to verify information before acting on it. With the right strategies, including diversification and consistency, the young investors of today can become the financially fit retirees of tomorrow.