Generations of new employees that is the millennials who born between 1981 and 1996 are experiencing both financial dynamism and risks in the United States. The millennial generation is faced with quite a different economy compared to their parents at the same age and a shift from great recessions to the gig economy makes them look for new efficient strategies of investing.
The knowledge about the prospects of popular investment instruments for millennials along with their peculiarities in today’s world will help the audience to be guided by the most suitable and effecting strategies for both investment and saving for the future.
Investing in stock market: A long-term strategy
Purchasing of shares is still considered as the key approach young people in the current generation take to accumulate wealth in the future. This strategy seeks to apply the method known as working interest, which is based on an ability of investment to generate further revenues through reinvestment.
Indeed stock market index has exposed high risks but has been also giving higher returns of investment than other modes. For example, S&P 500 index has provided an average annual return of about 10% per year over the period of 90 years.
In this way, millennials can minimize risks when investing, yet at the same time, gain from the development of various sectors and companies. Exchange Traded Funds (ETFs) and mutual funds are very effective for diversification while not having to know much about the markets.
Furthermore, it is suggested that millennials should use dollar-cost averaging approach; in this system, an investor puts a certain amount of money into the investment on a regular basis unfazed by the price fluctuation.
It minimizes the influence of the variation in the market prices and also eliminates the aspect of market timing. Consistently investing will allow millennials to get cheaper assets during the down periods, and get a much higher return once the market recovers.
Real estate investment: Building equity and passive income
Real estate investment is another powerful approach that can be effectively used by the millennial to create the millionaire status. Real estates are also flexible in the sense that one can actually get an appreciable asset in form of buildings or apartments, or get annuity type income in form of rental yields from properties.
This gives real estate the dual advantage of being portfolio insurance as well as a profit making venture for those who invest in it. Another important benefit that can be mentioned while speaking about the possibilities of real estate investment is the use of the leverage effect.
Thus, with a fairly minimalistic amount of the initial contribution, the millennials are capable of managing an object the cost of which is many times higher. For instance, an investment where a 20% down payment is made helps them to enjoy the whole value of the house appreciation.
In the same way rental income can also be used to pay mortgage as well as other bills and so it becomes a sort of income generating investment in the long run. House hacking is a well known concept among the younger population, the millennials. This entails buying a complex that has more than one housing unit, occupying a unit and then leasing out the other units to occupants.
Other units can be let out, and the income generated is used to cater for the mortgages, enabling the owner to live cheaply or even without paying anything. It not only lowers the bills that are incurred in the course of dwelling but also establishes own’s stake within property.
The other developing concept is the use of crowed funding with a view of investing in real estates. These platforms enable people to come together to form groups so as to be financially capable of purchasing or developing large commercial buildings or projects that an individual couldn’t afford.
Crowdfunding gives the millennials the ability to invest in real estate for a lower value than traditional methods while also being able to invest in various projects and in different regions.
Leveraging technology: Embracing robo-advisors and fintech solutions
About robo-advisors and fintech solutions: Whereby investors select individual equities and bonds themselves with help from a professional financial consultant, robo-advisors offer automated investment management services tailored for investors’ personalities based on their answers to a specific questionnaire.
They do that at reasonable cost, making them particularly popular among young, technologically literate millennials. Robo-advisors apply complex computer-based algorithms and big data analysis to design and control investment portfolios aligned with customers’ objectives, risk profiling, and time horizons.
These platforms tend to have lower fees compared to the conventional financial advisors; therefore, they are accessible to young people. Software automated platforms like Betterment, Wealthfront and SoFi Retail offer diversified portfolio, automatic rebalancing, harvest tax losses to boost of returns.
Other fintech solutions also refer to applications and platforms that are aimed at assisting people in investing and managing their money. For instance, the micro investing apps like Acorns and Stash where the users invest in the small value dollar amounts like rounding through the purchase amount and investing the change.
The basic concept used here is to make the investment look plausible for the common man who may not be in a position to invest significantly large amounts of money at a start.
Other smaller investment areas for millennials include the use of social lending sites like LendingClub and Prosper where one can invest in the loans of other people and earn an agreed interest.
These are online market places where borrowers are matched with investors, and it offers an investment grade more profitable than the regular savings accounts and bonds. However, credit risk of each loan must be analyzed to come up with right investments.
Another domain of technology with investing is cryptocurrency. Today cryptocurrencies such as the Bitcoin and Ethereum have trended to be used as some form of investment due to their high volatility and risk.
For the millennials, they should get into this space cautiously and they should invest a small sum of their money as they should keep track of the market and of the regulations.