Millennials have a plethora of investment options to build wealth and ensure a great financial future. And, the best way to go about it is to invest long-term. Experts agree that investing for the long term is the best way to beat the ups and downs that exist in the market. And, some options even beat investing in individual stocks. Investors have so many ways of investing today, with each option coming with varying levels of risk and reward. This means it is relatively easy to invest in the right option by considering your risk appetite and tolerance as well as how much you want to invest. For millennials looking to invest for the long term, here are the best options to include in your portfolio.
Millennials may know that stocks is one investment option to secure their financial future, but not all stocks are equal. If you are looking to invest in individual stocks, the best types of stocks are growth stocks. These are stocks that have a very high growth rate which translates into better returns. Many of the best growth stocks are for tech companies, which usually grow very fast. That said, it is possible to find some great growth stock options in other industries too.
There are several things you need to be aware of before you invest in growth stocks. The first is that, since the companies behind the stock are growing very fast, these stocks do not usually pay a dividend. This is because these companies are looking to find their growth by reinvesting everything back into the company.
The second is that these stocks can be very risky. When the economy sees a downturn, it is likely their value will go down too. However, these stocks can rebound very quickly and this is why they are some of the best performers in the market.
Although growth stocks can be somewhat riskier than other investment options, millennials will see that they offer a very high return and have been great performers for a long time. Both of these factors make them great for long-term investing.
If you do not know how to invest in stocks, do not have the time to manage individual stock investments, or simply do not want to do so, stock funds are a great investment option for you. With stock funds, you get to choose between mutual funds and exchange-traded funds (ETFs). Although both of these types of stock funds have their differences, they allow you to invest in several investments at once. They allow investors to pool money to purchase stocks of the best companies in the world or a category of stocks such as technology or healthcare.
Millennials who invest their money in a mutual fund or ETF end up with fractional shares of the companies in the fund. The best thing about this investment option is that they offer millennials some level of protection from market volatility. For example, let’s say you invest in an S&P 500 Index Fund. The fund contains shares of 500 companies in the S&P 500 index. If one individual stock falls, the other 499 will protect the investor from a more severe drop.
If you want the most protection, lean towards funds that invest in a broad index, such as the S&P 500, instead of those that contain stocks from single industries. And, if you are looking to invest for your retirement, the best time to start is now. The good news is that companies like WealthSimple make it very easy to invest in the correct funds or stocks even when you do not know how to invest in stocks. Their WealthSimple Invest tool is a great way to invest automatically, with the rules for these investments following a personalized investment portfolio that their team of real humans helps you to put together. WealthSimple has other investment tools including WealthSimple Crypto for those who would like to invest in cryptocurrencies and WealthSimple Trade, which makes it easy for investors to trade stocks commission-free.
Although mutual funds and ETFs are famous for stock investing, investors can use them for bond exposure. Bonds are fixed-income investment options that allow investors to lend governments or other entities money. The money invested (lent out) gets paid back within a fixed period and pays interest at fixed times depending on the fund you invest in.
ETFs and mutual funds can contain numerous bonds from different entities and governments. Because of this, bond funds can get categorized according to the bonds they hold. This is why you might hear some bond ETFs and mutual funds referred to as municipality, corporate, or government bonds.
Bonds are some of the safest investment options for millennials, especially if you invest in government bonds issued by stable governments. They become an even safer option if they are part of a fund. Bond funds come with the same benefits investors get from investing in stock funds.
Bonds remain relatively stable, although their payouts can fluctuate with the prevailing exchange slightly. If you are looking for safer bond funds, go with government bonds but know their reward can be somewhat low. If you have a high-risk appetite and tolerance and would like a higher return, corporate bonds and bond funds would be a great option for you.
Investors often compare dividend stocks to growth stocks, and for a good reason. For instance, many see dividend stocks as a safer alternative to growth stocks. And, although they do grow slower, dividend stocks still offer a solid return on investment.
Dividend stocks are stocks that pay a dividend. Depending on the dividend stocks(s) you invest in, you might receive a dividend every 3, 6, or 12 months. Dividend stocks are often older, more established companies that do not have to reinvest their funds into the company.
Dividend stocks are also a great option for older people because they provide a regular income. Because we are looking at how millennials can invest for the long term, often, the best thing they can do is reinvest their dividends into their existing portfolio. By doing this, investors can take advantage of the compounding effect and see their investments grow faster than if they spent the dividends.
Regular stocks and even funds such as ETFs and mutual funds can pay a dividend. However, investors need to remember that dividend stocks can still be subject to volatility that affects other types of investment. Their price can rise or fall with the market but the best ones, such as the Dividend Aristocrats or Dividend Kings have shown tremendous long-term stability.
In addition to knowing how much dividend stock will pay right now, it is also important to check the growth rate. A high growth rate means the dividend will continue increasing the longer you hold on to the stock.
The most popular long-term investment option for many millennial investors is real estate. However, to start investing in real estate, it will require a lot of money. Indeed, commissions paid can be quite high, and you might have to wait a while before you see any return unless you invest in rental property.
To be sure, real estate is also attractive because you can borrow against it, and then repay it over time. This can be an attractive option when interest rates are low. And, whether or not the mortgage is fully paid, you still end up with property to do as you wish. You can then leverage the property you have just finished paying off to get a bigger loan to invest in additional real estate or other ventures.
Real estate investment trusts (REITs) and REIT ETF’s are a great way to invest in real estate if you do not have a lot of money to invest right now. They function the same as mutual funds and ETFs because investors pull money into purchasing real estate. REITs can hold industrial, commercial, office, or even residential property. And, REITs make money through buying and selling these properties, in addition to renting them out. In fact, a large percentage of the income, usually 90-95%, goes to all the investors.
If you are thinking about investing in real estate directly, note that your money will be tied to an asset that you might have to manage. This lack of diversification can be problematic for some. However, if you do proper research and find the right property, it is possible to reap a huge return once you decide to offload the property. You might also decide to keep it and collect predictable monthly income if that is something you are interested in.
Final thoughts about investment options for millennials
Millennial investors are often put off from investing because they see it as being too risky. Or, they decide that they are not old enough to start investing. When millennials do their research and find someone to give them the right advice about investment options, they can turn out to be very lucrative. Also, the best time to start investing is now so that you can start taking advantage of the compounding effect which states that your money will grow faster the longer you have it invested.
*Disclaimer: All information and data in this article is solely for informational purposes. The information herein is based solely on my personal opinion and experience. All investments hold inherent risk, and the information provided should not be interpreted as any kind of guidance, recommendation, offer, advice, or suggestion. Any ideas and strategies discussed on this channel should not be implemented without first considering your financial and personal circumstances or without consulting a financial professional.