- Most Millennial and Gen Z investors borrow money to invest in stocks.
- Most of them took out a personal loan or reached out to family and friends, according to a new survey.
- Borrowing puts investors in “risky territory,” said Magnify Money, which conducted the study.
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80% of Gen Z investors and 60% of millennials surveyed said they had borrowed to invest. Between March 30 and April 6, the survey collected responses from about 2,000 US consumers. About half of those surveyed were investors.
The data showed that young investors are more likely to take out personal loans – often borrowing $ 5,000 or more – to invest, and secondly, turn to family and friends for funds.
The survey showed that older generations are much less likely to borrow: only 28% of Gen X and 9% of baby boomers borrow for investment. Of those who borrowed money, more than half said they would do it again.
Ismat Mangla, senior content director at MagnifyMoney, said borrowing puts investors in “risky territory” and needs to determine if they can afford to take that risk.
“You need to be sure that the return on your investment will exceed the cost of your loan. If this does not happen, you must be sure that you can withstand this financial blow, ”she said.
Millennials and Gen Z have joined the market en masse since the start of the COVID-19 pandemic, and many have used social media sites such as TikTok, which can sometimes be a source of questionable adviceto learn how to invest. Vanda Research data shows retailers have purchased $ 400 billion in additional shares since January 2020, double their total purchases from the previous year.
Many of the young investors have spilled over into a new meme stock phenomenon is a trend that started earlier this year when retail traders coordinating social media activities sparked a meteoric rise in GameStop’s stock. Since then, companies including AMC Entertainment and BlackBerry have seen skyrocketing prices thanks in large part to retail.
Wall Street analysts say stock prices are unrelated to reality, which makes them more risky and almost tantamount to gambling. As well as meme fund companies even began to warn retail traders that they could lose all their investments by making risky bets on stock prices above fundamentals.