Perspectives : DC Retirement | August 20, 2025

Mythbusting: Young investor edition

Andy Reed, Ph.D.

Vanguard Head of
Behavioral Economics Research

Contrary to some popular stereotypes about young investors, the kids are all right. They typically save more and invest in age-appropriate, low-cost funds at higher rates than previous generations did at the same age, all while avoiding frequent trading or excessive risk in their portfolios. Here are three common myths about how investors in their 20s and 30s are—and aren’t—investing.
Myth 1: Young investors are overconfident.

Reality: Although young investors are more likely than older investors to purchase options, make margin trades, or think they can beat the market, aggressive trading and overconfidence are the exception, not the norm. Most young investors do not think they can beat the market (63%), have not purchased options (64%), and have never made margin trades (77%) .1 Interestingly, nearly half of young Vanguard clients don’t even see themselves as “investors” (47%), suggesting that a lack of confidence may outweigh overconfidence.2

Why it matters: The antics of overconfident meme stock traders may make for great headlines, but research and history show that “trading is hazardous to your wealth.”3 Over a long period of time, a buy-and hold strategy that keeps pace with the market can lead to extraordinary portfolio growth. For example, the balance in a hypothetical low-cost portfolio with 6% returns over 30 years could grow more than fivefold.4

Myth 2: Young investors love risky portfolios.

Reality: Most don’t. According to FINRA, three out of four investors under the age of 35 say they are not willing to take substantial risk for higher returns.5 And many invest too little in stocks relative to a typical target-date fund allocation for their age group.6

The bigger issue? Not risk-taking, but unintentional cash hoarding. According to Vanguard research, investors under 25 leave 14% of their IRAs in cash, often because they forget to invest after making a contribution or executing a rollover.7

Why it matters: Young investors have the longest time horizons and the greatest potential for long-term compound gains, but they’re missing out if they sideline their savings in cash. In other words, time is on their side, but only if they put idle cash to work and stay invested for the long haul.

Myth 3: Young investors are “soft saving” for retirement.

Reality: Social media might lead you to believe Gen Z has given up on saving for retirement in favor of self-care and personal spending. But today’s young adults are actually more likely to have a 401(k) plan than their counterparts in 2004 (54% versus 28%); they’re saving more of their income (5.5% versus 5%); and they have significantly larger account balances ($6,899 versus $3,646).8 Gen Z has also made a notable shift from net spenders to net savers. In 2019, when the oldest members of Gen Z were entering the workforce, they outspent their income by over $7,500, but in 2023, they spent roughly $4,000 less than they earned.9 “Soft saving” is out; “revenge saving” is in.

Why it matters: Young investors today are ahead of the retirement savings curve, thanks in large part to 20 years of improved retirement plan design. If they can keep the drag from holding cash in check and stick with the right mix of diversified, low-cost investments, their future looks bright.

Takeaway: Millennials and Gen Z are in their investment era
  • Don’t believe everything you hear about the sad state of young investors. The reality? Most are far more likely to be automatically saving for retirement in an age-appropriate, professionally managed investment, like a target-date fund, than to be day-trading meme stocks.
  • Disengagement is far more common than excessive engagement. The typical young investor is doing nothing to their portfolio virtually all of the time—they’re not logging into their accounts, exploring speculative investments, or trading. And that’s okay. This means the composition of their portfolios is often the result of defaults and automatic enrollment in professionally managed solutions rather than risky speculation.
  • Flying under the radar? Two generational differences have drawn little attention but bode well for the future: Millennial and Gen Z investors at Vanguard are more likely to invest in ETFs and trade less frequently than older generations.10 The tried-and-true approach of buying and holding a low-cost, diversified portfolio remains alive and well for millions of young people.

Source

1 See FINRA’s Investors in the United States: The Changing Landscape (2022).

2 Data are from Vanguard’s Investor Identity Survey of 5,995 U.S.-based Vanguard individual investors and 401(k) participants, conducted in November 2024 and January 2025.

3 See Brad M. Barber and Terrance Odean’s Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. The Journal of Finance Vol. 55, No. 2 (April 2000): 773–806.

4 See Vanguard’s Principles for Investing Success, calculated from Figure 6 on page 14 (2024). This hypothetical illustration does not represent the return on any particular investment and the rate is not guaranteed.

5 See FINRA’s Investors in the United States: The Changing Landscape (2022).

6 Datadrawn from Vanguard’s How America Invests, 2020.

7 See Vanguard’s Improving retirement outcomes by default: The case for an IRA QDIA (2024).

8 Data drawn from Vanguard’s How America Saves 2006 and How America Saves 2025.

9 See the U.S. Bureau of Labor Statistics’ Consumer Expenditure Survey, (2024).

10 Vanguard analysis of approximately 7 million individual investors with accounts at Vanguard, as of December 31, 2022.

Notes:

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss.

There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investments in target-date funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in target-date funds is not guaranteed at any time, including on or after the target date.