Jerry gets up and puts on a pot of coffee. Squawk Box is on the television. They’re bantering about whatever happened on Twitter that morning. Jerry’s not on Twitter. He’s tired of hearing about all the rhetorical twists and turns on the app that are constantly pushing his stocks around. Sports commentators and actors turned venture capitalists are causing gyrations in the value of his retirement portfolio with their online antics.
Remember when stocks traded on fundamentals? Or at least they traded based on people’s perceptions of the fundamentals. What do they trade on today? It was always a popularity contest. Now it’s a three-ring circus.
It makes no sense. Jerry is tired.
Upstairs there’s a burst of excitement, the sound of a young man cheering. It’s Jerry’s kid, Aiden. Aiden’s been out of school for years. He’s making as much as Jerry did 30 years ago. That’s not enough to buy a house these days, but it’s plenty to sit in a room all day and speculate. Aiden’s trading as much as he’s working in his actual work-from-home job, and it sounds like he just scored again.
Jerry spent three decades saving and investing, prudently, and dutifully. He and Nancy have accumulated $1.2 million—for them it’s all the money in the world. Took them their entire lives.
Aiden made $800,000 in the past 12 months, starting with the $25,000 his grandfather left him. He did it from a phone, knowing virtually nothing about the instruments he traded. Read a few posts on Seeking Alpha, saw a few tweets from Mark Cuban, and pressed the Buy button. Then again, and again. Then with leverage. Then with crypto. It worked, repeatedly. Large gains led to larger trades, which led to even larger gains. “Why doesn’t everyone do this?”
Jerry’s role in the market is changing. He’s entering what financial planners euphemistically call “the decumulation phase,” as his consulting work slows down and his retirement income needs ramp up. The popular rule-of-thumb retirement income strategy—withdrawing 4% per year—cannot be accomplished with bond yields alone, as in the olden days. If Jerry wants his 4%, he’ll have to get some of it from principal, which means being a seller of stocks for the next few decades.
As Jerry and his generation gradually exit from the market, they’re being replaced by Aiden’s cohort. And Aiden’s cohort isn’t sentimental. The conventions from Jerry’s day hold no interest for Aiden or Jayden or Chelsea or Tyler or Madison. They don’t respect the traditions. The publications. The protocols. The norms. There’s no advice you can give them that they will adhere to, just as the boomers defied their Depression-era parents with their own excesses.
There’s an old “Wizard of Id” cartoon Jerry remembers from his own youth in the ’60s. It said, “Remember the Golden Rule: Whoever has the gold makes the rules.” Aiden’s generation went from almost no participation in the stock market to overnight dominance of it. They have the gold. They make the rules. Millions of new brokerage accounts. Trillions in value transferred from taxpayers and the Federal Reserve into accounts at Robinhood and Coinbase. More money pouring in with every paycheck. Leverage, too, because either this generation is truly fearless or (more likely) they haven’t had enough time to lose money yet. Either way, they decide what’s important to pay attention to and what’s irrelevant. If they choose to react to a 10-word Elon Musk tweet rather than a three-hour Warren Buffett monologue, how will you stop them?
How do you explain stock market risk to someone whose only formative experience with it took the form of a 16-day bear market last March, about the length of time of an NBA Finals series? How do you convince newly minted investors that diversification makes sense when the first stock they ever bought, Tesla, rose 800% while everything else moved in slow motion? How can you expect them to respect their elders when their elders seem to be giving them horrible advice? “Don’t trade too often, don’t use margin, Bitcoin is fake, Tesla is overvalued, cannabis is a bubble, SPACs are a scam …” You are Charlie Brown’s teacher now—your admonitions have become background noise.
And besides, it’s all been so easy. Between March 23, 2020 (the market bottom), and that same date this year, 96% of U.S. stocks had a positive return. You could not have lost money if you’d tried. Imagine learning to invest in an environment like this. How would you be acting if this was your first experience with stocks? Jerry can’t understand it. He’s seen bull markets, but nothing like this before. Everything goes up.
We locked everyone in their homes for a year and gave them a virtual life to live on their screens. Why should we be surprised if they treat money and investments like prizes in a video game?
If you had opened your first brokerage account in the spring of 2020, you would most likely have opened it at Robinhood. You didn’t drive over there, park your car, and talk to a man in a suit about your objectives. Instead, you downloaded an app, transferred $500 in from your couch, and pressed some buttons. Within 24 hours that $500 was likely worth $750. Within a week, $3,600. “I am a genius,” you said. “I should put in more. I should borrow some. What’s moving faster than stocks?”
With a Robinhood account, your first exposure to cryptocurrencies does not frame them as an unproven alternative to stocks. The two stand on equal footing. Coke and Pepsi. Feel like trading one or the other? Have at it, no difference. This is radically different from the experience of the Gen X and boomer investors logging in through Schwab, Fidelity, or Vanguard to check their balances or download a statement. They may come across a link to an article about crypto, but it certainly won’t be an opportunity to transact. On Robinhood’s app you practically can’t escape it. The generation creating the new conventions of the investing landscape views stocks and crypto coins as interchangeable. Aiden can’t discern any difference between trading one or the other. Both were available to buy and sell from the first day he got started, just as stocks and bonds were when Jerry first opened his IRA. If it moves, it moves. Take a moment to process this, but get used to it. Like the air you breathe, it’s not going away.
Aiden is taking profits from Bitcoin and Tesla and GameStop and Ethereum and Polkadot and AMC and Riot Blockchain. He’s not going to take Jerry’s advice on what to do with the proceeds, either. He’s not putting some in the bank. He’s not buying any “Spider ETFs,” whatever that is. His gold, his rules. He’s buying NFTs instead. Crypto art. Fractions of Ferraris. NBA video clips.
Aiden’s girlfriend Lakshmi works in marketing for Airbnb. When the company went public this winter, her net worth soared above Aiden’s and Jerry’s combined. A job she held for three years paid her more than a lifetime’s worth of Jerry’s savings. All those meetings, mediations, court appearances, and late nights reading through documents. All that travel and commuting. Jerry invested prudently because the money seemed irreplaceable. He’d traded hours and days and years to save it up. The same amount is now raining on people daily. They’re earning his portfolio’s value by accident. Earning isn’t the right word. Stumbling upon is more apropos.
Lakshmi knows it’s unlikely she will experience a liquidity event like this again. But she also has her whole life ahead of her. She has no idea what she wants to do with the rest of her twenties, so the idea of retirement is almost farcical. An equally laughable notion is that she should settle for the annual average returns of the “safe” 60/40 stock-and-bond portfolios touted by planners and advisers. “Do you see anyone who’s doing anything average getting ahead in life?” she asks herself. “America doesn’t work for average people.” She has a portfolio with more angel investments than blue-chip stocks. Her college friends and former colleagues are starting companies and soliciting capital. These businesses are getting funded, scaled, and acquired almost as fast as they can hire. Why anyone would prefer a mutual fund is a total mystery to her.
This is Aiden and Lakshmi’s market. It’s growing horizontally and cannot even contain the amount of capital swirling around in the ether. It’s expanded outward to include blank-check companies, venture-backed startups, tradable bits of computer code, investable software protocols, claims on fractional ownership in everything from comic books to cars and a whole lot more. The everything-goes-up era will end someday, maybe even soon, but the habits, expectations, and ambitions it created won’t go away.
For 14 months, the digital stock market hummed along without a hitch while the physical location that was once emblematic of American capitalism—the New York Stock Exchange—sat closed and nearly empty, a museum commemorating an earlier version of the world. Jerry’s stock market is fading away with every passing day. And it’s never coming back.
Here’s the actuarial math: If Jerry makes it to 65, he has a one in four shot of making it to 95. That could mean a retirement spanning three decades. Interest rates on Treasuries are not going to get him there. The one thing we know about the post-pandemic period is that its primary attraction is skyrocketing costs for everything. Lumber, labor, Chevy Silverados, single-family homes, microchips—you name it, the price is up. The only thing getting cheaper is money. The purchasing power of Jerry’s dollars will decline by 3% this year, statistically. In reality, it’ll be much worse. To offset this, the stock market is still one of the only games in town.
Yes, it all belongs to Aiden’s generation now, but Jerry still has to find a way to live with it—and to understand how the game is changing. To become fluent in the discourse. To familiarize himself with the rappers and influencers signing fashion deals at Gap, launching cannabis startups, backing blockchain projects. To learn the memes and clapbacks shaping each day’s discussions and outcomes. Jerry’s got his work cut out for him.
This article appears in the June/July 2021 issue of Fortune.
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