The AFR ran a story on young people's financial intentions yesterday.
The opening paragraph reads:
"Almost 50 per cent of consumers aged 18 to 24 are now interested in trading or investing in financial markets, according to a new survey, as aspirational wealth creation becomes a mainstream fixture of Gen Z pop culture."
Now, we shouldn't be surprised that 'aspirational wealth creation' is a thing for Gen Z.
It's been a feature of every generation for decades.
Nor should we be surprised that financial markets are their vehicle of choice.
They believe (whether true of not) that housing is unaffordable.
And the prevalence of finance apps (and the bringing down of costs as a core pillar of same) makes those markets more accessible than ever.
Which is great.
At least as far as it goes.
See, 'financial markets' is a very broad term.
So is 'trading or investing'.
Let's take them in turn.
'Financial markets' includes currency trading.
'Financial markets' includes options.
'Financial markets' includes CFDs (contracts for difference… but that's already more than you need to know).
'Financial markets' includes the vast array of cryptocurrencies, including the very worst.
In fact, much of the time, the phrase 'financial markets' is used to give a respectable veneer to what we'd otherwise refer to as gambling.
Yes, I'm dead serious.
Sure, there are some successful professional gamblers out there. But there are many, many more mug punters.
And as Warren Buffett says, "'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy."
Just because the app is provided by a 'financial services firm' and not a 'bookmaker' doesn't mean it's not gambling.
And if you don't have an edge (a real one, not one you think you'd like to have!), then you're the patsy.
Of course, 'financial markets' also includes the share market. And that's the one, courtesy of compounding, that has what the boffins call a 'positive expected outcome'.
That is, shares, as a whole, tend to go up, over time — unlike currencies that fluctuate over time, or options where, most of the time at least, there's a winner and a loser.
But that takes us to my second phrase 'trading or investing'.
The survey — and much of the financial media — uses these terms interchangeably.
So let me be clear.
They. Are. Not. Interchangeable.
Trading is the frequent buying and selling of shares, in the hope of a quick buck. Trying to guess where a share price, or whole markets might go next.
Now, I don't know about you, but if the biggest financial services mobs, with the best computers and fastest access can't do it, I don't reckon I can.
Or, perhaps more pertinently, if was trying to actually beat those guys with the most money, best hardware and quickest speeds… well, I think I'd be the patsy.
Trading is a series of speculations, usually based on either nothing much, or on the same information everyone else has.
Good luck with that.
Investing, on the other hand, is long term in nature.
It is planting the proverbial tree, and leaving it alone to grow.
You don't pull a seedling out of the ground every week to check the growth of its roots.
You don't rip a plant out of the ground because it didn't grow any taller last week, either.
And you don't build long term wealth by making endless, short-term bets and letting the market tell you how to think, feel and trade.
Yes, you have to water and fertilise your tree.
Yes, you sometimes have to prune some branches.
But most of the effort is done by the tree itself, as long as you chose well and planted carefully.
And — to really, really torture the metaphor, science tells us that even in the plant world, a diverse group of plants beats a single-crop monoculture.
So, you bet I'm pleased that Gen Z is, at least as a group, getting into 'financial markets'.
But I fear for their progress, if they fall prey to the siren song of every self-interested 'financial services' firm that sees them as a great 'mark' to make some money off.
And it's not just Gen Z, either.
All of us – novice and experienced alike – are being faced with the same siren song.
'Take a position.' 'Buy this, sell that.' 'Don't miss out.'
Don't, for a second, believe they don't know precisely what they're doing.
They make money as long as you take action.
That such action is likely not good for your financial health isn't their consideration.
Not only do they prey on our innate desire to 'do something', they do it with examples of people who've succeeded.
"John turned $10,000 into $1 million speculating in crypto / day-trading / trading CFDs" is seductive.
Of course, someone wins lotto every week, too — but that doesn't make lotteries a sound wealth-building strategy.
So, Gen Z, I'm glad you're interested, and keen.
I'm glad you're getting involved, and making strides to look after your financial future.
And yes, while almost everyone else is offering you hot chips, I'm offering you broccoli.
I get it.
But you know, deep down, that the hot chips taste good, but the broccoli is better for you.
Please, do the right thing.
Eat the broccoli.
Plant a tree.
Don't waste your time and money falling victim to those who'd rather make money off you, than for you.
Invest.
Fool on!
