Best ETFs for Gen Z Investors

New to the market, the youngest generation of investors is already making an impact

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Oct 19, 2021
Summary
  • Having grown up in an era of low interest rates, gen Z investors are more likely to hold stocks than open a savings account at a bank.
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They most likely don’t remember the days of dial-up internet and flip phones. They’re likely to feel more comfortable trading stocks on their phones than in a stockbroker’s office. Their portfolios might be more likely to have holdings in non-fungible tokens and cryptocurrencies than bond funds.

Gen Z, the generation born between 1997 and 2012, is the youngest cohort of investors today. Having grown up in an era of low interest rates, gen Z investors are more likely to hold stocks than open a savings account at a bank. For that matter, their technological ease makes them far more likely to trade on platforms such as Robinhood and Webull than walk into a brick-and-mortar bank.

Like generations before them, gen Z and their preferences in investing will shape the financial world for years to come.

What are gen Z investors buying?

With the older members of gen Z in their college and early career years, what are these investors likely to add to their investment portfolios? Here are a few trends popular with this group.

Crypto

The Motley Fool reports that 40% of gen Z investors own cryptocurrency, moving it more to the mainstream. This trend will continue as gen Z grows older, no matter that JPMorgan Chase (

JPM, Financial) CEO Jamie Dimon called it “worthless.”

With the cryptocurrency market expected to grow from $1.6 billion in 2021 to $2.2 billion next year, the myriad flavors of cryptocurrency aren’t showing signs of slowing down.

Count on this generation to increasingly include cryptocurrency in their portfolios and make exchange of these currencies in the future ubiquitous.

An eye toward growth

Don’t assume all gen Z investors own are meme stocks; some 58% of them own growth stocks.

Their investments aren’t all tech, either. Often beginning investors gravitate to businesses they know and love. With that in mind, a gen Z investor might pick up shares in Starbucks (

SBUX, Financial), Chipotle (CMG, Financial) or Lululemon (LULU, Financial).

Interest in growth stocks is smart for young investors. Time in the market plus growth will equal a nice nest egg. The additional risk of growth stocks is offset by the time younger investors have to make up any losses.

Passive income

Let’s follow that interest in growth stocks with an immediate contradiction. Gen Z investors also like the idea of passive income, so they buy dividend stocks. That’s a contradiction to growth stocks since often they don’t pay dividends.

Since 19% of gen Z reported investing in real estate in a GOBankingRates survey, they could get those dividends through real estate investment trusts.

Gen Z is smart to have an interest in growth and dividends since that’s likely to lead to a balanced portfolio. Signing up for a dividend reinvestment plan, or DRIP, will power a portfolio’s growth over time.

Best portfolio ETFs for gen Z investors

Younger investors have the advantage of additional time in the market for growth. Gen Z investors who access to a 401(k) at work should sign up even if they have other investment accounts. This way, they can take advantage of tax-deferred growth and company matches, if available. Some companies also offer the option of having a Roth 401(k), which would allow them to, in essence, pay tax on the seed instead of the harvest.

Whether they’re adding to a personal investment account or a retirement account, gen Z investors should consider these exchange-traded funds as additions to their portfolios.

  • Principal Millennials Index Fund (GENY, Financial): Embracing growth and disruption, this future-minded fund closely follows the results of the Nasdaq Global Millennial Opportunity Index. Among its top holdings are Alphabet (GOOG, Financial), Sony Group (SONY, Financial) and Facebook (FB, Financial).
  • GlobalX SuperDividend ETF (SDIV, Financial): With a 12-month tracking yield of 7.49%, the ETF provides passive income potential from investments in companies in the U.S. as well as in China, Britain, Russia and emerging markets.
  • ProShares Bitcoin Strategy ETF (BITO, Financial):The first ETF linked to bitcoin in the U.S., this ETF offers investors exposure to bitcoin through futures contracts. While it doesn’t own cryptocurrency, this ETF lets investors profit from it.
  • Invesco QQQ ETF (QQQ, Financial):A growth ETF that tracks the Nasdaq 100 Index, it ranks in the top 1% of large-cap growth funds and has consistently outperformed the S&P 500 Index. Invesco QQQ is a great ETF to buy and hold.
  • Vanguard Real Estate ETF (VNQ, Financial):Since gen Z investors may have interests in real estate and passive income through dividends, this ETF could be an option. It provides exposure to real estate investment trusts in health care, residential, commercial and industrial sectors. Its dividend yield was 3.05% last year, and it has 16 years of consecutive dividends under its belt.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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