Sometimes, older generates try to differentiate themselves from millennials (or young adults- call them what you will) because of the stigma of irresponsibility that is associated with the millennial generation. This is especially true in regards to managing one’s personal finances, where millennials are often typecast as being reckless with their money. In fact, according to statistics from Openfolio, an investing social media network, millennials and baby boomers have similar investing tastes. Many of the same stocks that are favorable among millennials, such as Apple, Facebook, and Google, are also favorable among baby boomers aged 50 to 64. Even so, it is important that millennials take an individual approach to investing in the market. As the largest generation in U.S. history (with a population of over 83 million according to statistics from the U.S. Census Bureau), they represent the future of the economy.
Some millennials may be more inclined to risky behaviors than their predecessors, but when it comes to investing, millennials invest their money less than previous generations did. This regression of investing can be attributed to a variety of factors including student loan debt, a tough job market, and watching parents struggle through the recession. As millennials enter their peak spending years, however, there is no better time for them to take on and manage more risk by investing in stocks, in order to prepare for their careers and eventual retirement. The market is volatile and therefore difficult to predict, but financial experts advise millennials to embrace risk in order to generate future wealth.
Risk will always be a major factor when dealing with stocks, but millennials need to learn how to manage and mitigate risk when investing in order to harness the full strength of their spending power. Here are some things millennials interested in investing should consider.
There’s no time like the present, and when wealth invested in stocks accumulates over time, that saying holds especially true. Financial experts advise millennials to start investing as soon as they start accumulating wealth, meaning as soon as they have an income and are saving away money. It’s easy to feel burdened by more pressing expenses like rent and student loan payments, but according to RBC Wealth Management, “Investing smaller amounts of money over a longer period of time is a better strategy than investing a larger sum later due to compound interest.”
As far away as your eventual retirement may seem when you are just entering the workforce, you should already be thinking about investing in your retirement. How often you add to a retirement account is just as important as how much, so millennials should consider a company 401(k) to invest a fixed, regular amount from their paycheck.
Technology is the most popular sector for millennials to invest in (they have nearly a third of their portfolios in technology companies, according to TD Ameritrade), but it is important to have a well-diversified portfolio. As the saying goes, never put all your eggs in one basket. Buying individual stocks comes with a huge element of risk because, if that company were to fail, you would lost all of the wealth you invested in it. It’s far better to limit your stake in any one company to between 2% and 5% of your portfolio, meaning you should invest in at least 20 different stocks. Likewise, millennials should expand their portfolios to incorporate a variety of sectors.
Mutual funds and ETFs vs. individual stocks
Mutual funds and ETFs, as opposed to individual stocks, allow investors to invest in hundreds of stocks at a much lower risk and a lower cost than buying individual stocks. According to Kiplinger, they are “a simpler way to reap the benefits of the stock market.”