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As older generations increasingly reach retirement age, millennials are becoming more and more important to the investment industry. Some millennials are reaching their peak earnings years, allowing them to save more and invest to meet their own financial goals.
While there are some similarities between millennials and older generations, millennials also have their own unique preferences when it comes to investing their hard-earned savings. Here’s some of the latest data on millennials and how they invest.
- 33 percent of millennials prefer real estate investments when it comes to money they won’t need for more than a decade, according to a 2022 Bankrate survey on financial security. The stock market was the second highest preference at 23 percent.
- Older generations are more likely to cite volatility as a reason for not investing in the stock market, whereas just 29 percent of millennials said the potential for volatility made them cautious about investing in stocks.
- 22 percent of older millennials (ages 33-41) said they were intimidated by the stock market, the Bankrate survey found.
- Millennials are also more likely to think that the stock market is rigged against individual investors compared to baby boomers and Generation X.
- More than half (54 percent) of millennials say their first investing experience came through a 401(k) plan, according to a recent Schwab survey of 401(k) plan participants.
- Millennials think they’ll need $1.8 million to retire, according to the Schwab study.
- 75 percent of millennials say their personal values guide their investment decisions, according to the 2022 Schwab Modern Wealth Survey.
Millennial investing trends
In a 2022 Bankrate survey, one-third of millennials said they’d choose real estate as their preferred investment for money they won’t need for at least 10 years, with the stock market as their second choice at about 23 percent.
Older generations such as baby boomers and Generation X tend to be more comfortable with the stock market than millennials. Millennials cited the stock market’s intimidating nature and the perception that it’s rigged against individual investors as reasons for their caution.
Wealthy millennials in particular have shown a greater interest in alternative investments such as real estate, commodities and private equity, according to the 2022 Bank of America Private Bank Study of Wealthy Americans. Younger investors (ages 21-42) allocate about 16 percent of their portfolio to alternatives, compared to just 5 percent for those aged 43 and older, the study found. Younger investors also held just 25 percent of their assets in stocks, compared with about 55 percent for older investors.
Millennial investors are also increasingly focused on the impact of their investments and not just their financial return. In a recent Schwab survey, 75 percent of millennials said their personal values guide their investment decisions and about 73 percent said they invest in companies that align with their personal values, higher than both Generation X (69 percent) and baby boomers (63 percent).
This increased focus on an investment’s impact could send millennial investors flocking to funds focused on environment, social and governance (ESG) issues. ESG assets are expected to grow from $35 trillion at the beginning of 2021 to about $50 trillion by 2025, according to Bloomberg Intelligence. Exchange-traded funds (ETFs) focused on ESG issues may prove to be popular with millennial investors.
Millennials and cryptocurrency
As cryptocurrencies burst onto the investment scene in recent years, these speculative assets have been particularly popular with millennials. In 2021, 49 percent of millennials said they were either “very comfortable” or “somewhat comfortable” investing with crypto, according to a Bankrate survey.
Millennials’ confidence investing in digital assets fell to about 29 percent in 2022, as cryptocurrencies plummeted amid rising interest rates, high-profile instances of fraud in the crypto industry and concerns about their long-term viability.
Cryptocurrencies are largely speculative investments with no intrinsic value because they aren’t backed by hard assets and don’t produce cash flows for their owners. Their prices have fluctuated wildly in recent years as traders hoped to profit from the enthusiasm for new coins. As the Federal Reserve raises interest rates to control high levels of inflation, prices for speculative assets have declined as investors reassess the risks they’re willing to take.
Millennials and investing for retirement
On average, millennials hope to retire at age 62, according to a recent Schwab survey of 401(k) plan participants. That’s earlier than older generations, despite millennials thinking that they’ll need $1.8 million in order to retire.
More than 90 percent of young workers surveyed said they were “very” or “somewhat” likely to achieve their retirement goals, which may reflect the multi-decade runway still ahead of them before reaching retirement age. Millennials did cite unexpected costs, caring for family members and educational expenses as hurdles to achieving their retirement goals.
Investing is crucial for nearly anyone looking to retire one day. Holding money in cash is certain to lose value over time as inflation erodes its purchasing power. Investing in time-tested assets such as stocks and bonds can help you keep pace with inflation and even grow your nest egg at a rate beyond that.
Best investments for millennials
Millennials have plenty of choices to consider when it comes to investing. Here are a few of the top ones to consider for your portfolio:
- Stocks: For long-term goals such as retirement, stocks have proven to be one of the best investments to make. A stock represents a partial ownership stake in a business and its performance should track that of the underlying business over time. You can either buy individual stocks or buy baskets of them through ETFs and mutual funds.
- Index funds: Index funds seek to match the performance of market indices such as the S&P 500 or the Russell 2000. Index funds can be used to invest in stocks, bonds and even real estate. Index funds typically come with low costs and are a great way to build a diversified portfolio.
- ETFs: An ETF is a fund that holds a basket of different securities, but trades throughout the day like a stock. ETFs can be used to invest in different asset classes and industries. ETFs can be great if you’re just starting out because they can be used to build a diversified portfolio and typically don’t have a minimum investment.
- Mutual funds: Mutual funds are similar to ETFs in that they hold a basket of securities, but they only trade at the end of each day at the fund’s net asset value, or NAV. You can buy mutual funds through an online broker or directly from the fund company, but they often have investment minimums of a few thousand dollars.
As millennials move through their investing lives, their investments will likely shift from being growth-oriented and somewhat risky (stocks) towards being more focused on capital preservation and less risky (bonds and fixed income). If you’re in your 20s or 30s and are saving for retirement, you’ll likely want the vast majority of your portfolio invested in stocks, but as you get closer to retirement age, the allocation will shift away from stocks and toward safer assets.
Millennials held just 2.4 percent of U.S. stock and mutual fund shares at the end of June 2022, according to the Fed, but that number will likely rise in the coming years as they continue to invest, inherit money from older generations and reach their peak earning years.
While there are similarities between millennials and past generations, millennials are increasingly focused on alternative investments and how their money makes an impact through ESG-focused investments.
If you haven’t started yet, now is the time to get started with investing.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.