The United States Census Bureau expects
Millennials â people born in the years between 1980 and 2000 â to
make up Americaâs largest population cohort by 2019. The so-called
âselfieâ generation, despite being fairly driven and competitive,
is in fact quite conservative when it comes to investments. About
50% of millennials are burdened by student loan debt and are
primarily investing in safer options including bonds, money market
instruments, mutual funds, etc.
Most millennials now park their savings into 401(k)s and IRAs,
which are essentially tax-advantaged retirement savings
instruments. While thereâs nothing wrong with investing in a
401(k), especially when a portion of your contribution is matched
by the employer, the plan offers investments in mostly low-risk,
low return options like mutual funds, bonds and other similar
instruments. While an IRA account might enable you to invest in
other financial instruments like stocks, the maximum contribution
limit is just about $5,500 a year. Further, both options attract
penalties on withdrawals before retirement.
Is concentrating too much on retirement savings and taking the
low-risk-low-return path right for millennials when they can pump
their money into more rewarding investment options?
Isnât it Risky to be Risk Averse Now?
Having witnessed the market collapse during the 2008 financial
crisis, millennialsâ risk tolerance levels are low. In fact, survey
results from Bankrate.com reveal that around 33% of millennials
view cash as king and find it difficult to part with.
However, not taking enough risks during this phase of their life
when they have time on their side could also be a potential
mistake. While millennials are doing a good job by saving in
traditional ways, many are playing it quite safe with their
investment strategies, keeping their money out of high-return
investment options that could ensure a much brighter future and
self-supporting retirement.
Equity Investing for Higher Returns
Equity investing is surely not for the faint hearted. However,
long-term investments in quality stocks could be a great way to
build wealth. With millennials inclined toward the health and
wellness, entertainment, and technology industries, strong brand
names in these respective markets with growth potential would make
for best bets.
This is also in line with Warren Buffettâs philosophy of investing
in those businesses which one understands. Buffett is considered by
many to be one of the greatest investors ever. The man always
places his investment dollars only in businesses that he fully
comprehends and it actually makes a lot sense. If you donât
understand the business, it becomes difficult to predict its future
performance and understand its potential. Further, value investing
and holding on to your stock for a long time is a more prudent
strategy than just trading for short term gains.
Be it the FAANG stocks â Facebook FB, Apple AAPL, Amazon AMZN,
Netflix NFLX, and Alphabet GOOGL â or companies like The Walt
Disney Company DIS and NIKE, Inc. NKE, millennials should find good
bets for long-term capital appreciation.
Real Estate Investing: The Red-Hot Option
If you think property investing is only for the old and rich, you
may be missing out on an extremely lucrative investment vehicle
with solid cash flows, high returns and the ownership of a tangible
asset. While about half of the millennial population is skeptical
about real estate investing, it does ensure an early and a more
financially secure retirement as well.
While for some, this may not be quite a feasible option considering
heavy student loan debt, others should not miss the opportunity.
Itâs certainly worth buying your first home after saving for the
down payment versus paying the rents and making the landlord
rich.
If you already own a home, consider saving up for another down
payment, buying a second house, renting it out, and becoming the
owner, getting monthly checks without the hassles. You might start
simple and small but do your research thoroughly. Choose the right
property and consider your cash flows.
Hedge Your Bets with ETFs
Considering many millennialsâ unadventurous approach to investing,
a portion of an individualâs portfolio invested in exchange traded
funds will help mitigate losses in case markets crash and can also
provide diversification. Vanguard Health Care ETF VHT, First Trust
NASDAQ Smartphone ETF FONE, iShares U.S. Technology ETF IYW, and
Invesco Dynamic Software ETF PSJ are some popular ETFs worth
investorsâ attention.
Bask in Goldâs Glow
The addition of gold to your portfolio is another great way to
solidify your financial future. Owing to its countercyclical
relationship with the stock market, this precious metal can provide
cushion against market volatility and act as a hedge against
inflation. Though it may not be a highly rewarding investment, a
small portion of your portfolio invested in gold is certainly a
wise option to diversify your holdings. Also, while many other
precious metals, which may be in vogue in a given period, may lose
their intrinsic value with time, gold has actually stood the test
of time, making it a reliable option.
Bottom Line
An individualâs risk tolerance, social responsibility, desire and
time horizon determine their investment decisions. However, risk
taking can be rather healthy for the younger generation considering
the time advantage that they have.
Millennials should not be hesitant to tap into more lucrative
investment options like stocks and real estate, while also keeping
in mind the important aspect of diversification of oneâs
portfolio.
A Simple Way to Build Wealth
No matter what your financial goals are, investing in quality
stocks is an option worth considering. Stocks have produced better
returns than other kinds of investments over the years and
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The Walt Disney Company
(DIS) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free
Stock Analysis Report
Amazon.com, Inc. (AMZN) :
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Facebook, Inc. (FB) : Free
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Alphabet Inc. (GOOGL) :
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Apple Inc. (AAPL) : Free
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FT-NDQ SMARTPHN (FONE): ETF
Research Reports
VIPERS-HLTH CR (VHT): ETF
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ISHARS-US TECH (IYW): ETF
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NIKE, Inc. (NKE) : Free
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PWRSH-DYN SFTWR (PSJ): ETF
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