As older generations increasingly reach retirement age, millennials are becoming increasingly important to the investment industry. Some millennials are entering their peak years, allowing them to save and invest more to achieve 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.
Millennial investment statistics
- According to a 2023 Bankrate survey on financial security, 33 percent of millennials prefer real estate investing when it comes to money they won’t need for the next decade. The stock market was the second highest preference at 23 percent.
- Older generations are more likely to cite volatility as a reason not to invest in the stock market, while only 29 percent of millennials say the potential for volatility makes them cautious about investing in stocks.
- 22 percent of older millennials (ages 33-41) said they were intimidated by the stock market, Bankrate’s survey found.
- Millennials are also more likely than Baby Boomers and Generation X to think the stock market is biased against individual investors.
- 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.
- According to the Schwab survey, millennials think they need $1.8 million to retire.
- According to the 2023 Schwab Modern Wealth Survey, 75 percent of millennials say their personal values guide their investment decisions.
Millennial investment trends
In a 2023 Bankrate survey, a third of millennials said they would choose real estate as their investment of choice for money they won’t need for the next decade, with the stock market being their second choice at about 23 percent.
Older generations, such as baby boomers and Generation X, tend to be more comfortable in the stock market than millennials. Millennials cited the intimidating nature of the stock market and the perception that it is 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 2023 Bank of America Private Bank Study of Wealthy Americans. Younger investors (21-42 years old) 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 kept only 25 percent of their wealth in stocks, compared to about 55 percent for older investors.
Millennial investors are also increasingly focused on the impact of their investments and not just their financial returns. In a recent Schwab survey, 75 percent of millennials said their personal values drive 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 lead millennial investors to flock to funds that focus on environmental, social and governance (ESG) issues. According to Bloomberg Intelligence, ESG assets are expected to grow from $35 trillion in early 2023 to approximately $50 trillion by 2025. Exchange-traded funds (ETFs) that focus on ESG issues may prove popular with millennial investors.
Millennials and cryptocurrency
As cryptocurrencies have entered the investment world in recent years, these speculative assets are especially popular among millennials. According to a Bankrate survey, 49 percent of millennials in 2023 said they were “very comfortable” or “somewhat comfortable” investing in crypto.
Millennials’ trust in digital assets fell to around 29 percent in 2023 as cryptocurrencies plummeted due to rising interest rates, high-profile cases of fraud in the crypto industry and concerns about their long-term viability.
The two most popular cryptocurrencies, Bitcoin and Ethereum, are each down more than 75 percent from their 2023 highs in November 2023.
Cryptocurrencies are largely speculative investments with no intrinsic value, as they are not backed by hard assets and do not generate cash flows for their owners. Their prices have fluctuated wildly in recent years as traders hoped to capitalize on the enthusiasm for new coins. As the Federal Reserve raises rates to control high inflation, prices for speculative assets have fallen as investors reassess the risks they are willing to take.
Millennials and investing for their retirement
According to a recent study, millennials on average hope to retire at age 62 Schwab survey of 401(k) plan participants. That’s earlier than older generations, despite millennials thinking they need $1.8 million to retire.
More than 90 percent of young workers surveyed said they are very or somewhat likely to achieve their retirement goals, which could reflect the many decades ahead of them before reaching retirement age. Millennials cited unexpected costs, caring for family members and education costs as obstacles to achieving their retirement goals.
Investing is critical for almost anyone who wants to retire one day. Holding money in cash will certainly lose value over time as inflation erodes its purchasing power. Investing in proven assets like stocks and bonds can help you keep pace with inflation and even grow your savings at a faster pace.
Best investments for millennials
Millennials have plenty of choices to consider when it comes to investing. Here are some of the most important ones to consider for your portfolio:
- Stocks: For long-term goals such as retirement, shares have proven to be one of the best investments. A stock represents a partial ownership interest in a company and its performance over time should track that of the underlying company. You can buy individual stocks or buy baskets of them through ETFs and mutual funds.
- Index funds: Index funds attempt to match the performance of market indexes 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 have low fees and are an excellent way to build a diversified portfolio.
- ETFs: An ETF is a fund that holds a basket of different securities, but trades like stocks during the day. ETFs can be used to invest across different asset classes and sectors. ETFs can be great if you’re just starting out because they can be used to build a diversified portfolio and typically don’t require a minimum investment.
- Investment 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 an investment minimum of a few thousand dollars.
As millennials move through their investing lives, their investments will likely shift from growth-oriented and somewhat risky (stocks) to more capital preservation-oriented and less risky (bonds and fixed income). If you’re in your 20s or 30s and saving for retirement, you probably want the vast majority of your portfolio invested in stocks, but as you get closer to retirement age, the allocation will shift from stocks to safer assets. .
In short
According to the Fed, millennials owned just 2.4 percent of U.S. stocks and mutual funds at the end of June 2023, but that number is likely to rise in the coming years as they continue to invest, inherit money from older generations and reach their peak earnings. years.
While there are similarities between millennials and previous 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 investing.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
