- A majority of Millennial and Gen-Z investors are borrowing money to invest in stocks.
- Most took out a personal loan or turned to family and friends, a new survey shows.
- Borrowing puts investors into “risky territory” said Magnify Money, which conducted the research.
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80% of Gen-Z investors and 60% of Millennials surveyed said they took on debt to invest. The survey gathered responses from about 2,000 US consumers from March 30 to April 6. Of those surveyed, about half were investors.
Young investors were most likely to take out a personal loan – oftentimes borrowing $5,000 or more – to invest and turned to family and friends for funds second, the data showed.
Older generations were much less likely to take on debt, with only 28% of Gen Xers and 9% of Baby Boomers borrowing in order to invest, the survey showed. Of those who borrowed money, more than half said they’d do it again.
Ismat Mangla, MagnifyMoney senior director of content, said borrowing puts investors into “risky territory,” and they need to determine if they can afford to take that risk.
“You want to be confident that your investment gains will exceed the costs of your loan. If they don’t, you should be confident that you could take that financial hit,” she said.
Millennials and Gen Zs have joined the market in droves since the COVID-19 pandemic began, and many have used social media sites like TikTok, which can be sometimes be a source of questionable advice, to educate themselves on investing. Data from Vanda Research shows retail traders purchased an additional $400 billion in stocks since January 2020, doubling their total purchases from the year prior.
Many of the young investors have poured into the new phenomenon of meme stocks – a trend that started earlier this year when retail traders coordinating on social media caused shares of GameStop to skyrocket. Since then, companies, including AMC Entertainment and BlackBerry among others, have seen sky-high prices largely thanks to the retail trade.
Wall Street analysts have said meme-stock prices are disconnected from reality, making them a riskier bet and nearly equivalent to gambling. And meme-stock companies have even begun to warn retail traders that they could lose all their investment making risky bets on stock prices trading above fundamentals.