Higher interest rates, inflation push Gen Z investors to trade stocks on emotion. That may be bad, experts say

cnbc.com:

Almost 9 in 10 young investors have actively traded stocks this year due to higher interest rates and inflation, according to a new Bankrate survey. And that behavior may cost them in the long run, experts said.

«If younger investors trade in and out of the market, that's almost guaranteed to underperform,» said James Royal, a Bankrate analyst who conducted the research.

The Federal Reserve started raising interest rates aggressively in March 2022 to rein in persistently high inflation. Borrowing costs are now at their highest level in more than 22 years, though inflation has declined substantially since hitting a pandemic-era peak in June 2022.

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U.S. stocks posted their worst showing since 2008 against that economic backdrop last year. But higher interest rates also meant better rates on savings accounts like high-yield ones offered by online banks.

The S&P 500 stock index has rebounded in 2023 and is up 14% year-to-date.

Eighty-seven percent of Generation Z investors have responded to higher interest rates and inflation by buying or selling stocks, or by withholding additional investment, according to Bankrate.

That share «substantially» exceeds the 52% average among American investors of all ages, Royal said.

The Gen Z group includes anyone aged 18 to 26 with stocks or a related account like a 401(k) plan.

«Gen Z — and, in part, millennials — have never seen a period of high interest rates, nor a period of high inflation,» said certified financial planner Ted Jenkin, founder and CEO of oXYGen