Young Americans are increasingly planning for retirement by investing in the stock market while putting off homeownership.
Why it matters: For decades, owning a home has helped Americans build their nest eggs. A generation putting all its eggs into stocks without having weathered a prolonged market slump may be in for a surprise.
What they're saying: The meme stock craze of 2020 caused a "generational shift in how people think about building wealth," Kevin Gordon, macro strategist at Charles Schwab, tells Axios.
- That means stocks, but Gen Z hasn't experienced a "protracted and more painful bear market" like older investors have, he says.
- "It's not the norm to see a 20% drop and then a record climb back to all-time highs," he notes, referring to what happened in April.
- That rebound might have given younger investors the takeaway that "buying the dip" almost always pays and carries little risk.
By the numbers: Retail trading activity has doubled since 2010, making up about a quarter of daily trading volume.
- About a third of 25-year-olds have investment accounts today, a sixfold increase from a decade ago.
- Financial assets and investments are "taking a bigger share" of the wealth picture for young people, George Eckerd, research director at JPMorgan Chase Institute, tells Axios.
Zoom out: The shift away from homeownership, especially among young and lower-income Americans, could widen the wealth gap, says José Torres, senior economist at Interactive Brokers.
By the numbers: While stocks can be volatile, housing values have remained consistently strong, outside of the global financial crisis.
- Homeownership accounts for nearly half of Americans' wealth, and a home is the average American's most valuable asset.
- In 2022, the median net worth of U.S. households rose to $176,500, up from $136,500 in 2019. That increase was driven largely by rising home equity, according to the U.S. Census Bureau.
- While both stocks and housing can be affected by macro factors, home prices are typically not highly correlated with the stock market.
Zoom in: The barriers to homeownership keep rising, while investing has never been easier or cheaper.
- Trading doesn't require credit checks, brokers, paperwork or a huge down payment — just a few clicks from your phone.
Yes, but: Gen Z is better positioned for retirement than older generations thanks to broader access to retirement plans through their employers, Vanguard notes.
- That has enabled them to start saving and benefiting from long-term compounding earlier in their careers.
- And it may not be that young people have abandoned housing as a wealth builder, it's just unaffordable right now, Eckerd says. That could change as interest rates fall.
What we're watching: Young investors will be tested during their first market downturn that doesn't bounce back fast.
- If the "buy-the-dip" generation gets scared and sells, their retirement savings would be at risk, and so could their belief in the market as a wealth-building mechanism.
