How Gen Z investors can cope with stock market volatility

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Amid the U.S. war with Iran, some young investors have gotten their first taste of market volatility.

“An early decline can make the market feel unusually dangerous when volatility is a normal part of long-term investing,” said certified financial planner Douglas Boneparth, president and founder of Bone Fide Wealth, a wealth management firm in New York City.

“It can be unsettling because they don’t yet have the experience of living through prior downturns and recoveries,” Boneparth said.

Since the war in the Middle East began on Feb. 28, the S&P 500 has seen daily drops of more than 1.7% and daily gains higher than 2.5%, according to data from Morningstar Direct. Stocks have fared slightly better since the U.S announced a two-week ceasefire on April 7.

Still, within the first month of the war, the S&P 500 shed more than 7%. An initial investment of $10,000 in the index on Feb. 28 would have dropped to around $9,260 by March 29, Morningstar Direct calculated.

The S&P 500 has now wiped out its losses from the Iran war, pushing that investment to $10,026 as of Monday’s close.

Those market swings may have an outsized impact on new investors, said Zach Teutsch, founder and managing partner at Values Added Financial, a wealth management firm in Washington, D.C.

“Our first experiences weigh heavily on us emotionally and in how we see the world,” said Teutsch, a member of CNBC’s Financial Advisor Council. “It’s hard not to overlearn our first few lessons.”

Gen Z, those born between 1997 and 2012, started saving and investing at 19 on average, according to a 2024 Charles Schwab report. To compare, baby boomers began investing at an average age of 35.

Expect 15 bear markets in your working years

The latest volatility is nothing unusual, though.

Indeed, young people can expect around 15 bear markets during their working years, said Cristina Guglielmetti, a CFP and the president of Future Perfect Planning, a wealth management firm in Brooklyn, New York. A bear market occurs when an index declines 20% or more from recent highs.

In recent weeks, the Nasdaq and Russell 2000 entered correction territory — a decline of at least 10% — while the S&P 500 came close. All have since rebounded.

“Clients sometimes ask me if the market will crash, and I tell them that it’s not a question of if, but when,” Guglielmetti said.

The best strategy is ‘one you can stick with’

Recent market swings may have taught you about yourself as an investor, Guglielmetti said.

“Nothing beats experience,” she said. “You can know, intellectually, that the market is volatile, but until you actually see your numbers go down, you don’t really know how you’ll react.”

If you were overly anxious about your investments during the last few weeks, “maybe a 100% stock portfolio isn’t right for you, even if you’re very young,” Guglielmetti said. You may want to keep a share of your money in cash, bonds, certificates of deposit or money market funds.

The best investment strategy is “one you can stick with over time,” she added, “not necessarily the one that gives you the highest returns if you can’t stay in the market.”

To be sure, you don’t want to invest too conservatively, and risk falling short of your financial goals, or yank money out of the market during downturns and miss the market recovery.

Strategy may also need to change for near-term goals

Most people in their 20s and 30s who are investing for retirement want to keep the lion’s share of their money in stocks, Boneparth said. However, “where strategy may need to change is around near-term goals,” he said.