Over half of investors 18 to 34 invest for the thrill—here’s how to not lose your shirt

There are a lot of reasons why people start investing, including saving for retirement and building wealth. But one of the best reasons to start putting money into the market is so that it will grow faster than if you left it all in a bank account. 

Of course, investing also comes with some risk. Stocks can go up in value, but they can also fall. And if you're not careful, you could lose money. One of the worst mistakes you can make as an newbie investor is thinking that putting money in the stock market is a quick way to make a lot of cash.

A new survey conducted by Select and Dynata found that younger investors are also investing for the thrill. In fact, more than half (61%) of 18- to 34-year-olds agree that they invest because it's a thrill to "gamble" in the market. This is the highest percentage among all age brackets we surveyed. For comparison, just 16% of investors 65-plus agreed that they invested in the market for the thrill of it.

It's easy to simply write off these findings and attribute them to the fact that risk tolerance tends to decrease with age: Younger investors, further from retirement, can have more fun in the market versus older investors who are inching closer to their nonworking years and may want to be more conservative.

But younger investors who are less experienced should be wary. While you might enjoy the sudden rush of excitement when a stock price rises, one day you will have to face the stress of seeing the stock price fall.

"I think there is a real difference between investing and trading," says Sallie Krawcheck, co-founder and CEO of the digital investment platform Ellevest. "Trading certain types of securities can be akin to gambling, but historically the market wins. Non-professional traders, recreational traders, historically have eventually lost."

For those thrill-seeking investors out there, here's some advice on how to invest so you can avoid completely losing your shirt.

The money investors use to fund their thrill-seeking in the market should be money that they are financially comfortable losing, says Erin Lowry, author of "Broke Millennial Talks Money" and "Broke Millennial Takes On Investing."

Investing comes with risk, and even more so when you choose individual stocks versus diversified funds. With diversified funds, your money is spread across various securities, so it's more likely that when some stocks in your portfolio go down, other will go up and balance the loss. When you put your money in individual stocks, however, that risk is concentrated to that one company. For this reason, financial advisors recommend you only trade individual stocks with cash that you can afford to lose.

Before you invest, Krawcheck recommends you ask yourself, "How will I feel if this goes to zero? Will I be OK? Will I have had enough fun along the way?"

Whatever you do, do not use your retirement money to fund your investments. The money you have been setting aside for your nonworking years should be kept in a tax-advantaged retirement account for the long haul. These accounts, like IRAs, are made up of a mix of investments like mutual funds, ETFs and bonds and you can rebalance it based on your timeline to retirement.

When investing in individual stocks, Lowry suggests that it's OK to learn by trying as long as you don't jeopardize everything you have — and that includes the nest egg you've been growing for your retirement years.

"I don't want you thrill-seeking with your retirement account," she says.

While Lowry doesn't like the analogy that investing is like gambling, she acknowledges that "if the whole point is an emotional jolt, it's much more akin to gambling."

If you're seeking a thrill in trading stocks like you do betting at a casino, then you should follow the same rules you set for yourself on a trip to Vegas. Give yourself a certain amount of cash to invest, and when you've run out, don't let yourself invest more.

Experts generally suggest setting aside 5% to 10% of your overall investment portfolio for stock picking in a taxable brokerage account. "Fundamentally, what it comes down to is how much loss you can stomach," Lowry says.

If you're not comfortable with all the concentrated risk of buying individual stocks, it's OK (and arguably a smarter move) to stick with a diversified investment portfolio where the risk is spread out across a wide variety of asset types and investment vehicles. With diversified portfolios, things have to be really bad to go to zero, says Krawcheck.

When it comes to investing in individual stocks, some people will make a lot of money, but it's more likely that you will just be jeopardizing your future financial stability.

"Every bull market has a group of new traders who come in and say, 'This is easy,'" Krawcheck says. She cautions that this new class of traders should be wary that the market tends to eventually win.

"I don't know a single amateur trader who has traded their way to retirement," Krawcheck adds.

Beginner investors should feel good about starting off with a more hands-off approach to the market by using a robo-advisor that does the work for them, offering low-cost diversification and regularly rebalancing their portfolios automatically.

Two pioneers in the automated investing space are Betterment and Wealthfront, the former which also provides access to a human advisor. Betterment's premium plan allows users to get unlimited access to a financial advisor, and one-time advisor consultation fees range from $199 to $299.

Following the trends is one of the biggest mistakes an investor can make.

"Even a meme stock," Lowry says. "That bubble happened so fast."

We saw eager, new investors jumping in on AMC and GameStop in January 2021 and some made millions, but those who chase the trends are often too late once they hear about it and end up buying at top prices.

"As soon as your grandma knew what bitcoin was, you weren't going to have the same opportunity to amass crazy wealth," says Lowry.

It's crucial to understand the tool you're utilizing to invest. With gamified apps, Lowry points out that investors can be tempted to make particular moves that aren't the best for their portfolio.

"Your game is not realized until you sell," she adds.

In order to be a successful investor, you need to determine your own long-term investing goals and ignore push notifications alerting you to rises and falls in the market. In fact, experts often caution against watching the market too closely as it's constantly changing. You're better off leaving your investments alone for the long haul than trying to keep up with the excitement of the stock market. Set up an investment account with a recurring monthly transfer and forget about it.

It's important to realize that your investing behavior may be a result of our social environment.

There is a distinct difference between how women and men are conditioned to think about investing, says Krawcheck. Whereas women tend to think that they aren't as smart about money, the exact opposite is true for men.

"Our society expects of, and sends messages to, men that money is something they should be good at," Krawcheck says. "What I worry about is that men are overconfident and women are underconfident. That socialization is important here, too."

In other words, men's overconfidence may lead them to make thrill-seeking investing decisions because they feel it fits their perceived role in society. It's part of masculine behavior that you're good at trading and a big win in the market is something to brag about later on in conversation, Krawcheck explains.

While it's important to get started investing early, young investors who choose stock picking for the thrill could very easily find their strategy backfiring.

Before you even get started investing in individual stocks, make sure you have the basics covered: you've paid off any high-interest debt (hello, credit cards), you have emergency fund and you're investing — and meeting any company match — in your 401(k).

Once you've checked off those boxes, follow the advice above. Invest in individual stocks with extra cash you're OK losing, establish limits beforehand, know that it isn't easy to 'win,' forget the trends, make sure your investing tool works for you and don't feel pressured to be a thrill-seeker investor just because society makes you feel like you should.

Select's survey included 1,006 total U.S. adult respondents and was fielded by Dynata between Aug. 12 to Aug. 18, 2021.