Over the past 30 years, the low-cost revolution has transformed finance as we know it. Investors not only now have access to near zero fee mutual funds/ETFs, but nearly every publicly traded firm around the world is available to a U.S. investor wrapped in a tax-efficient and diversified ETF with a few clicks of a button.
While this seemingly is a good thing for the average investor, the appearance of zero costs to trade, paired with high valuation levels, has induced a new type of risky behavior amongst retail investors — seeking out high volatility zero-sum products and turning their back on the less risky, simple, positive-sum products like market-wide ETFs — a behavior akin to financial nihilism, which the World Economic Forum describes as “the sense that the economic system no longer rewards prudence or long-term planning,” a shorthand for Gen Z’s “apparently self-destructive relationship with money, which includes crypto bets, prediction markets and retirement accounts raided to pay off credit cards.”
I believe that financial institutions must share in the blame in this phenomenon. Since it is no longer profitable for brokerage houses to make money on broad market mutual funds or ETFs, they have had to dream up other, higher-margin products to make available to retail investors. These products are almost exclusively in the realm of derivatives and serve retail investors next to no practical purposes, yet can be highly profitable to those issuing them in the transaction fees associated with them.
These high-margin products that brokerage houses have rolled out in the past five years have taken different forms. Starting around 2022, the CBOE rolled out zero-date options en masse. This kind of options trading on stocks, crypto and other assets allow investors to take a one-day bet that a position will go up or down, and retail investors gobbled these zero-sum products up with reckless abandon, paying out the nose in fees and lost returns.
Where exactly this financial nihilism is coming from is still open to debate. Markets and consumers have diverged in their opinions and outlooks over the past five years. The market is at an all-time high, while Michigan’s consumer sentiment index (which measures consumer future looking attitudes about the economy) is at an all-time low. This feeds into fears of the K-shaped economy and how individuals in the middle class see a lack of future prospects in their daily lives.
This June, the CFTC approved perpetual futures for U.S. investors for the first time. perpetual futures, a derivative that never expires, are again zero sum (for every dollar gained in this market, there is a dollar lost) and contain an immense amount of risk. In fact, there was until recently a 100x Bitcoin perpetual future that retail investors bought in huge amounts. This product would magnify the daily returns of bitcoin by 100x, losing investors a fortune in this down bitcoin market.
All told, the perpetual futures market has already surpassed daily volumes of $10 billion in the U.S.and there are only a dozen or so such contracts traded at this point in time on Kalshi and Coinbase. Numerous other institutions have signaled they will roll out these products over the next months. Yet this expansion serves retail investors in no discernable way. Architect CEO Brett Harrison, whose exchange handles a large portion of perpetual trading, said on a recent podcast appearance that a vast majority of the perpetuals markets are used for speculation, rather than for hedging purposes.
In addition, we have also seen the rise of prediction markets, which also allow retail investors to make zero-sum bets on event-based outcomes. Fortune, Axios and CNBC all separately reported that during the 2026 FIFA World Cup, the prediction market Kalshi achieved massive growth, recording $27 billion in total trading volume and adding 3 million new users. This, again, is a massive inflow of money to contracts and securities that net the investor no money on average and could have been allocated to the positive-sum equity market instead.
Last, but not least, is the anticipated rollout of highly non-transparent private credit funds coming to retail investor retirement accounts. Again, retail investors have shown a strong appetite to buy into private credit despite the lack of information and correct pricing of the illiquid positions underlying the funds. These offerings while providing no real diversification benefits to retail investors will provide retirement account managers and brokerage houses high fees in the annual expense ratios associated with the products.
In all, retail investors have turned their backs on some of the best products available to them over the past five years. Two decades ago, it would have been unthinkable that an investor could access a broad market index like the S&P 500 and make an approximately 10% return per year at a cost of nearly 0% paid per year. Now this is available through many ETFs and yet, retail investors are shunning this offering in favor of products with an expected return of 0% before fees. Once fees are factored in on these zero-sum products, investors will experience a net return of negative 1% per annum by some estimates in favor of hopefully striking it rich on the volatility. It is this financial nihilism that will doom the retirement accounts of this generation of retail investors, despite the fact they were given all the tools to succeed in the retirement savings game.
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