How Well Informed Gen-Z Investors are Going Wrong with their Investment

Young professionals who belong to early Gen-Z (Born  mid 1990s) are voracious consumers of information and keep themselves updated with latest developments in technical and financial world. However paying too much attention to noise can sometimes backfire as they are just starters in their investment journey.

Below are the various ways many early Gen Z investors are going wrong,

1.Over Enthusiasm About Buzz Words Like AI, ML, Quant:

Whether it’s a new start-up stock advisory service or a big MF house, everyone is alluring customers claiming their state-of-the-art Artificial Intelligence or Machine learning or Quant model will generate superior returns, However these institutions are comfortably ignoring the importance of study of the fundamentals or impact of their huge fees/brokerages which will reduce the investor returns drastically even if the portfolio makes decent gains. Gen Z thinking AI/ML is the new magic wand of investment world, easily falling trapped here.

2.Over exposure to P-2-P lending or Leasing/Crowdsourcing Investments:

P-2-P lending and Crowd Funding for Start Up companies are riskiest investment options which uninformed young investors can choose. However many such companies campaigning that such investments can yield up to 25% of return which many Gen Z tech-savvy investors finding impossible to resist as that’s just one click away!

3.Trading (and Loosing heavily) through Algo Trading and F&O Segment:

                 Now a days all brokerage houses and self-proclaimed trainers promoting derivative segment as a way of Financial Moksha  – Money, Work-Life-Balance, FIRE and everything and anything under the sky, and all these for their brokerages and hefty fees for their two-day seminars! The concept of growth/value investing or basic purpose of Options and Futures as risk management tools have gone out of the window. Many young earners continuously investing their monthly income on the hope that one fine day they will suddenly become millionaire by Algo Trading or F&O Segment but in the process they are preparing to lose billions throughout their lives! 

                

4.Trying to put their hands on everything but too little:

Many Gen-Z investors do not want to let go any opportunity which come in their way. So all different kinds of funds, NFOs or tips discussed or published in media get a  place in their portfolio,  be it a largecap/smallcap/multicap, multiasset, focus fund, world gold fund or world equity fund! However it should be kept in mind that too much diversification creates more issues as many underlying assets become similar increasing concentration risks and periodic rebalancing for these small exposures becomes an uphill task too.

5.Neglecting Debt Portion of the Portfolio as its not cool!:

Most of the Gen Z investors have a wrong notion that investing aggressively in equity will fetch them very handsome return and thus the concept of rebalancing is almost absent in their financial discipline. This is not correct approach and proper asset allocation between equity and other asset classes must be done periodically based on market’s condition. Also frequent selling of equity by Gen-Z investors to follow the latest trend is another sure shot way of destroying long term wealth due to taxes and brokerages.

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About the Author:

Ahirjoy Biswas is a Computer Science Engineer and has over 18 years of experience in IT and BFSI industry.