Investing

Here are the most popular stocks among Gen Z and millennial investors — and what experts say to do before buying them

Investors age 40 and younger have recently gravitated toward three types of investments.

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By now, you've probably read the headlines about the burgeoning younger generation of investors. Since the pandemic began, they've been piling into the stock market in record numbers. But which stocks are they actually interested in?

A recent study from DailyFX attempts to shed some light on the situation. The finance site tracked user searches for stocks on online brokerage Robinhood for the 12 months ending in April to determine the companies that millennial and Generation Z investors — those from their late teens to age 40 — were most interested in buying.

Most popular stocks among young investors

Daily FX's eclectic results (which exclude viral phenomenon GameStop, so as not to skew the data) generally fall into three categories:

Household names

Apple earned the most interest from younger investors, and fellow name-brand stocks Disney, Amazon, and Microsoft also made the top 15.

Looking into familiar companies can be a good starting point for your investment research, says Douglas Boneparth, a certified financial planner and the founder of Bone Fide Wealth in New York City. "You may think, 'I like this brand. Everyone around me likes this brand,'" he says. Then from there, "it's time to do some due diligence before you put your money at risk." (More on that below.)

'Reopening' plays

These are stocks that investors hoped would reap the rewards of an economy that was emerging out from under the pandemic. American Airlines, Carnival, and Delta Air Lines stock all landed among the top 10, with Norwegian Cruise Line and United Airlines not far behind. Investors in these firms were shopping in the bargain bin — buying stock in companies with depressed share prices that they hoped would bounce up when the economy sprang back to life.

Industries of the future

Investors in these companies are hoping to benefit from the long-term adoption of new technologies, even though it may be as yet unclear when these trends will come to fruition. For example, companies involved in electric vehicles, including Tesla, NIO, Nikola, and Workhouse, peppered the top 50 names.

Young investors are equally eager to capitalize on the potential for federal marijuana legalization, with cannabis firms Aurora Cannabis, Aphria (which rival firm Tilray acquired earlier this year), and Canopy Growth all cracking the list.

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How to invest in individual stocks

'Make sure you have a strong financial foundation'           

If you're thinking about buying these or any other individual stocks, make sure you have your financial house in order first, says Boneparth. That means establishing good spending and saving habits and building up an emergency fund. Most financial pros suggest holding 3 to 6 months' worth of living expenses in cash, though some recommend more.

"Before investing in anything, be it individual stocks or a portfolio of ETFs, you need to make sure you have a strong financial foundation," Boneparth says. "That will put you into the position to not only invest, but stay invested."

After that, he says, you should build a well-diversified core portfolio, one that won't fluctuate too much based on the moves of any one particular investment. That typically means looking at investments that bake diversification in, including mutual funds and ETFs. From there, you can start branching into picking individual stocks — but keep that part of your portfolio relatively small.

"If you're making a relatively risky or opportunistic investment, you might want to limit it to 5% to 10% of your portfolio," he says. "It's all subjective, of course, but you want to limit your exposure to any one company. You don't want big corrections in individual stocks to dictate too much of your overall portfolio. You need to be able to recover if that happens."

Invest with a thesis rather than speculating

When it comes to picking stocks, establish a rationale for why you want to buy a particular name. And no, buying because you think the price will rise is not a sufficient thesis, says Sam Stovall, chief investment strategist at CFRA. "Buying a stock because you think other investors will bid up the price isn't investing, it's speculation," he says. "You should be buying companies with sales and earnings and potential to make more money down the road."

For investors interested in any of the three categories of stocks mentioned above, Stovall recommends a "concentric circle" approach — identifying a larger theme before eventually homing in on the companies within that theme that you think look most attractive. Within reopening stocks, for instance, you may think airlines look particularly promising. From there, you can delve into the major airlines' financials and study which firms weathered pandemic-related financial difficulties best, and which you think are best poised to increase their profitability as the economy continues to reopen.

Once you establish a thesis, think about the timeline for your investment, says Boneparth. For the above example, "airlines aren't necessarily a long-term objective. Maybe the play is only good for the next few years," he says. "You have to put a time frame on it."

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Once you've set a prospective time frame for your investment, continually monitor how your thesis may change. In this case, Covid variants could disrupt airline profitability in the short term, or their growth prospects could level out once travel is back in full swing. Changes to your thesis may be reason to part with your shares or add more.

If the timeline for your investment is more nebulous — say, if you're investing with an eye on the legalization of cannabis — Boneparth suggests taking the opposite tack: spreading out your bets, rather than putting all your money behind the success of one or two firms.

"It can be frustrating, because you're thinking, 'I know this is going to be huge. I just don't know which companies are going to have the competitive edge and win the biggest market share,'" he says. "That's where buying an ETF and owning all of the top names in the space can come in handy."

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