When it comes to saving and building wealth, the earlier you get started, the easier time you will have as you go. Younger generations, including millennials, are starting to get to that point in their lives where if you haven’t started investing and earning interest, you are missing out on a significant portion of savings.
However, it seems millennials are skeptical about putting money away to invest in the stock market. According to a study from Bankrate, only 23 percent of millennials say that the stock market is the best place to put savings.
If this sounds like you, check out this guide to discover the top smart investments for millennials to get you started on your path towards financial freedom.
1. Individual Stocks
One of the best ways for millennials to invest is to start by selecting a few individual stocks or companies that you use personally and believe will continue to perform at a high level in the future. However, there are a few different types of stocks to be on the lookout for to avoid selecting the same types of business.
For example, you wouldn’t want to invest all of your money into, say, new technology companies that are growing at a fast rate, as the technology sector could experience a downturn. It’s best if you can diversify the companies you invest in and select a few different types of stocks to protect your portfolio.
Certain companies will pay you a portion of the earnings just for investing in the stock. Dividends are just that, profits made by the company that’s paid out to investors generally on a quarterly basis.
A few popular companies that pay good dividends include:
- Coca Cola
- And Aflac
You may recognize most of these companies because they are large, well-established corporations that have established their positions in their respective markets.
The best part of investing in dividend-paying stocks for millennials is that you can reinvest the dividends and purchase more shares of the company. By doing so, you are creating a compounding effect that helps to multiply your savings and investments. According to research from Hartford Funds, 84 percent of the total return of the S&P 500, a stock market index, can be attributed to reinvested dividends.
On the other hand, growth stocks don’t typically pay a dividend as they are using the money to fund the company and accelerate its earnings growth.
One of the most popular investment strategies for millennials is buying growth stocks for long-term investment growth. These include companies such as
- Zoom Video
- And Square
It’s important to keep in mind that growth stocks can and often do have higher valuations. In these instances, investors are willing to pay a premium for the chance to earn a portion of the company’s future earnings.
2. Exchange Traded Funds (ETF)
Exchange-traded funds or ETFs are another type of financial instrument that people can invest in and earn a return on their investment. Instead of selecting individual stocks, ETF’s are an excellent investment tool that Millenials can use to grow their savings without having to worry about a particular stock.
ETFs are a collection of several stocks, often designed to track the price movements of another index or sector. This past year was an exciting one for ETFs as they experienced the largest amount of investments this past year in 2020, with $507.4 billion being invested into the funds.
Millennial investors can choose from a wide selection of different funds to invest in – some more risky than others. For example, one of the most popular ETFs of the past year, ARK Innovation (ARKK), had an excellent year in 2020. According to information on the ARK’s website, the fund grew 175.20 percent in just one year.
However, this year has been a different story, with the fund losing 3.98 percent in value in the first three months of 2021.
Another investment that has blown up in popularity and value this past year has been cryptocurrencies. Cryptocurrencies are digital assets where many are used to exchange for either a) another cryptocurrency b) or other goods or services.
The most popular cryptocurrencies you may have heard of include
- And Polkadot
All of the digital assets listed above experienced significant advancements in both popularity and value in 2020.
4. Index Funds
Although index funds are not quite as fun to invest in as cryptocurrencies, they are still an excellent way to build wealth and enhance your savings.
Just like an ETF, an index fund is also a collection of investments and different stocks. However, Index funds cannot be bought and sold on the open stock market. Index fund transactions are only placed at the end of the day when the financial market closes.
Index funds are often harder to invest in because they require minimum deposits or other special requirements. When investing in index funds, it’s best to speak with a financial professional such as those at taaginc.com to give you professional advice.
5. Alternative Investments
Alternative investments is a broad term and can refer to a wide range of investments. Rather than investing in traditional investments like stocks and bonds, alternative investments will include assets like:
- Commodities (gold, silver, gas, oil, corn, coffee)
- Real estate
- Trading cards
Although alternative investments should only be a small part of your investment portfolio, they can produce massive returns over time. In February, the most expensive basketball card sold for $4.6 million, an autographed rookie card of Luka Doncic.
Alternative investments can be a great way to diversify your portfolio and also give you a chance to generate significant returns if the asset increases in value.
Getting Started With Investments for Millenials
Investing is one of those things that sounds like a good idea when reading or talking about it, but when it comes down to actually doing it, many people fail to act. A common reason for this is because it’s generally a slow process – investing isn’t about getting rich overnight. It’s about building long-term wealth to set yourself up for future financial success.
If you are looking for more information about investments for millennials and building wealth, check out the rest of our blog!