Millennials, who are presently aged between 20 and 40 years old have witnessed a number of events that have shaped their lives. These range from the worst depression ever to occur since the great depression to a student loan crisis and a global pandemic. As a result, it is no surprise therefore that saving and investing for millennials isn’t really a priority.
That being said, given that a number of millennials have finished their academic journey and have a few years’ worth of work experience under their belts, several millennials are now at the age where they can and ought to consider investing. By doing so they can better achieve their long-term financial goals.
Investing for millennials – Understanding the Importance of Savings
While the 2008 financial crisis might lead some to believe that investing brings with it risks, not investing also carries risks. By investing in your mid-20s or mid-30s it is possible to give your money a long-time frame to grow. Regardless of the fact that the markets move upwards and downwards, it is rare for them to remain down for long periods of time.
Stock investments have been shown to deliver superior returns to cash and bonds in the long run. Money lying in a savings account is not being adequately used and is subject to inflation which rises as time goes on. In contrast, stock market investments are capable of compounding over several years.
There is a snowball effect incurred when money is invested over time. By compounding at an early stage in one’s life, interest is earned not only on investments but also on the interest earned. This allows for investors to acquire a large balance over time even if additional capital investment isn’t added to the same.Â
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Investing for millennials – Important Facts to Consider
Millennial investors must acquaint themselves with the following facts such that they are able to make wise investment decisions. Investing for millennials is based on the following 5 time-tested pillars:
Risk Tolerance – Prior to making an investment it is important to understand one’s ability to tolerate risk. These risks pertain to investment losses which may be temporary or permanent. Before investing in a given security always ask yourself whether or not you can stomach a loss or not.Â
Asset Allocation – As you develop your investment portfolio it is important to consider what portion of it should focus on stocks and what portion should focus on alternative assets in the form of real estate and bonds among others.
Active v/s Passive – Equally important is a decision to be an active or passive investor. The former seek to beat popular market indices such as the Nifty 50. On the flip side passive investing involves attempts to match the performance of broad indices and is a more affordable option.
Diversification – This implies investors spread out their assets across several asset classes in order to mitigate risks. Diversified portfolios have been shown to perform well over time.
Time Horizon – Understanding the time frame you seek to outline for your investments is critical. Different financial goals have different time frames in place and can have different investment routes. Long-term goals that are at least 5 years away ordinarily require long term assets such as stocks. ON the flip side short-term financial goals such as paying a down payment on a house are better suited to safer assets like a high-interest savings account.
Wrapping Up
Investing for millennials isn’t very different, millennials can traverse the investment landscape by visiting the Angel One website which has a comprehensive range of offerings each aimed at improving financial literacy and allowing for viable investments to be made. Stocks, index funds, ETFs and mutual funds stand out as particularly good investments for millennials today.
