What Investors Need to Know About Gen Z

The next big consumer cohort is Gen Z, the demographic coming of age right now, following the millennials. If you’re looking for insight into what might be next in terms of solid portfolio additions, reviewing the habits of Gen Z could be a good place to start.

And if you’re searching for a big picture view of where your finances stand, we suggest using the free tools from Personal Capital. Read our review here.

Who is Gen Z?

For the most part, Gen Z is represented by those born after 1996, according to the Pew Research Center. While you might think of Gen Z as too young to command much in the way of spending power, it’s important to note that the oldest members of Gen Z are in their early twenties and have graduated from college and/or are working in jobs. Not only that, but even younger members of Gen Z have spending power from their high school jobs or allowance. Gen Z has $143 billion in spending power, just in the U.S., reports the Financial Post.

Some of the characteristics that mark Gen Z, according to the Financial Post, include:

• They’re more likely to find out about products on social media and are more open to influencer marketing.
• You probably won’t find them stocking up on beer. Instead, they’re more interested in marijuana and might have other vices.
• Online shopping — including for groceries — is a big part of Gen Z habits.
• Brand loyalty is more about aligning with values. While older investors were worried about Nike including Colin Kaepernick in their advertising, Gen Z embraced the bold stance and Nike benefitted overall.
• Many in Gen Z are more likely to buy their clothing second-hand.
• Members of Gen Z are less likely than earlier cohorts to eat meat. Meat alternatives, as well as alternatives to pre-packaged brands, might be worth considering.

However, it’s important to note that investors should keep an eye on Gen Z for a few years yet. Even though the oldest members of this generation command spending power, the youngest members are still in elementary school, so their consumption habits might change.

Remember, though, that no matter the age of members of Gen Z, they are true digital natives. Some millennials still remember–even if vaguely–life without the internet and they might have knowledge of life before smartphones. Gen Z represents true digital nativism, with many of them getting their first smartphone at a young age and growing up at a time when the internet was already ubiquitous.

Keeping this in mind is important as you consider trends related to Gen Z, and making portfolio changes based on this information.

How to Invest in the Rise of Gen Z

While there’s no way to predict the future or choose winners and losers with complete accuracy, you can still look at the habits of Gen Z and get an idea of what might be a good addition to your portfolio, based on where they might put their money in the future.

Piper Sandler completed a semi-annual Gen Z survey (check out the link to the survey at the end of this article), focusing on teen spending habits that might reveal where the next cash flows might be headed. The most recent survey, from Spring 2020, reflects spending habits while in quarantine. However, even with that information, you might still be able to get some investment ideas around where the money is going.

Here are some general trends Piper Sandler reported.

Food is the Top Spending Item

If you’re hoping to invest in the rise of Gen Z, focusing on food might be the way to go. Food is the number one expenditure, according to the survey. Top brands that teens favor include:

• Chick-fil-A (not publicly traded)
• Starbucks (SBUX)
• Chipotle (CMG)
• McDonald’s (MCD)
• Dunkin’ (DNKN)

As you can see, even though teens say that healthy eating is important to them, they are still likely to spend on food that is quick and convenient. One reason that Chipotle might be so high on the list is due to the fact that it has marketed itself as a healthier option for fast-casual dining.

Entertainment Spending

Interestingly, according to Piper Sandler, video games represent only 8% of total teen wallet spending–and this is in line with last year’s spending, even though we’re in a pandemic now and teens are more likely to be stuck at home.

However, 59% of teens are expected to purchase a next-gen video game console. Both Xbox (Microsoft — MSFT) and PlayStation (Sony — SNE) are expected to release their next-gen consoles for the 2020 holiday season, so that might be something to look into if you think that those stocks will do well in the future.

Earlier this year, the Nintendo Switch was practically impossible to find. In fact, my Gen Z son went on a multi-day quest to find a Nintendo Switch to purchase, and it finally panned out when a kind store clerk gave him a tip. However, Nintendo doesn’t trade on a U.S. stock exchange (although you can get it on the Tokyo exchange).

Instead of relying on video games, though, it might be worth it to look into other entertainment. According to Piper Sandler, teens use Netflix (NFLX) the most for video consumption, followed by YouTube (Google — GOOG). Disney+ (DIS) debuted with 7% of video consumption for teens. However, it’s worth noting that with Marvel properties and other popular entertainment properties, Disney continues to be a powerhouse.

Shopping Trends for Gen Z

If you’re looking for e-commerce sites to invest in as a result of Gen Z spending habits, Amazon (AMZN) continues to dominate. Amazon was cited by 53% of teens as their favorite e-commerce site in the Piper Sandler survey, an increase over the 50% that mentioned it last year.

When it comes to apparel brands, Nike (NKE) remains the favorite. However, other brands, like Lululemon (LULU) are rising in the rankings. If you’re hoping to invest in companies that Gen Z trusts, these companies might not be a bad choice.

One of the biggest shopping trends to be aware of include the fact that the iPhone (Apple — AAPL) is dominant among Gen Z. In fact, 85% of teens own an iPhone according to the survey, and 88% expect that the iPhone will be their next smartphone purchase.

Recommended Brokers for Your Gen Z Portfolio

While it might not make sense to compose a portfolio entirely of stocks based on potential Gen Z trends, adding a few stocks aimed at profiting from the spending of the rising generation might make sense. You can open a brokerage account at one of our recommended brokers and begin buying stocks. Some of the brokers we recommend include:

• You Invest by J.P. Morgan: Best for free trades and cash bonuses.
• Ally Invest: Best for new investors and those looking for a very easy website to navigate.
• TD Ameritrade: Ideal for more experienced traders looking for a rich set of tools and resources.
• E*TRADE: Offers trading platforms and tools for any investment style.

When putting together a portfolio, make sure you consider your long-term investing goals. Starting with index funds can be a good way to get going, with a few carefully chosen individual stocks to help you meet your goals.

In the end, there’s no way to say exactly what the future will bring. We’re facing potential economic fallout from the COVID-19 pandemic and Gen Z is still a diverse demographic whose spending habits are likely to change. However, if you’re looking for a few stocks to consider, Gen Z might provide some guidance for a few solid additions to your portfolio.

You can find Piper Sandler’s Gen Z Spring 2020 survey here.