Why are some young people investing based on emotions instead of research?

Saul Oster started investing in the stock market this year and says he plans to do so until he retires.

The 20-year-old University of British Columbia student says he likes the idea of ​​passive income, where his investments make him money without much effort.

He says that most of his friends are also investing. They regularly monitor and trade the stock market.

“Many times we’ll be sitting around and someone will ask you to buy something and you’ll buy it. No research, just pure gut feeling,” he said. cost of living,

Oster and his friends are part of a growing group eschewing conventional trading wisdom and relying on emotions and life experiences to guide their investment decisions.

according to Ipsos survey of 1,001 Canadians conducted According to CIBC’s Investor’s Edge, 34 percent of Gen Z respondents said they find financial advice from older generations irrelevant.

He said evolving markets, new financial instruments and changing priorities are reasons he no longer trusts that advice.

The survey also found that 21 percent of Millennials and 19 percent of Gen Z respondents were encouraged to adopt a risk-taking attitude toward investing, which is higher than the general population.

Why are people investing based on emotions?

Oster says that trading based on intuition has yielded better results than actions taken after research. His first big purchase was an exchange-traded fund (ETF) in Canadian mining companies because he thought energy was “going to be the next big thing.”

“Over the last seven months, I’m up a little over 180 percent,” Oster said.

Instead of relying solely on research to make investment decisions, Oster and his friends use their guts.

He says a friend invested in Walmart because, as a student, that’s where he went for cheaper prices. Oster says he thought other people concerned about their budget would also choose Walmart.

“It’s paid for but it’s not out of research. It’s just because that’s what he sees and that’s why he invested money in it,” Oster said.

Liz Enriquez says most people, not just Gen Z, manage their money based on emotions, not logic. She is a personal finance advisor based in Hamilton, Ontario, and the founder of Ambitious Adulting, an online platform that simplifies personal finance.

She says technology has made investing more accessible, more popular and less elitist.

“Now, the investment ecosystem is essentially the same as online shopping,” Enriquez said.

She says the fear of falling behind financially is a big motivator for young people who see investing as their only option.

“The message is that you have to invest to get ahead. There’s no way you can save up and buy a house,” Enriquez said.

Managing investment risks

Andrew Aziz says it’s important that people don’t invest based solely on emotions. Aziz is the founder of Bear Bull Traders, a Vancouver-based online trading community.

His biggest investing advice for beginners is to educate yourself and get started early. He says building wealth early can help young people pay for important milestones like a wedding or a house and cover the expenses that come with having children.

“Those investments from 10, 15 years ago are now coming to the rescue,” Aziz said. “It’s more difficult to start saving at 35 or 40 with a lot of responsibilities.”

Aziz says beginners’ luck can be encouraged by giving them a taste of the earning power of investing. He also said that losing $10,000 helped him realize the risks.

“Everyone can survive a $1,000 loss or mistake. But as you age, your risk appetite decreases because you don’t have enough time or freedom to recover,” Aziz said.

Aziz says one of the challenges young investors face is not knowing enough about investing basics like the company’s background.

Influencers can guide people’s investment decisions by letting social media users know what investments are trending and revealing successful investment portfolios and strategies.

But Aziz says people need to remember that most influencers are paid to promote products and they don’t know the future.

“You have to be careful how much of your assets are going into following these people,” Aziz said.

Artificial intelligence is the latest investment hype, but Aziz urges people to diversify their portfolios as all bubbles burst. He also says that users should be wary of fraudulent companies.

As young people like Oster start out, Aziz and Enriquez advise them to devote part of their salary to investing to harness the power of compound interest.

Enriquez says a common mistake she sees people make is keeping cash instead of investing it.

As Oster continues his investing journey, he hopes to contribute the maximum annual amount to his tax-free savings account and earn enough to live comfortably, even if it involves some risk.

“Overall, investing is completely positive because you learn only when you lose,” he said.