By Hari Subramanian
Special to the Financial Independence Hub
From the ‘safety-first’ attitude of baby boomers to the ‘putting themselves out there’ nature of Gen Z, generational cohorts offer great insights into the evolution of the human psyche based on different experiences.
Millennials are not exactly what you call ‘risk takers’ but are more open towards new opportunities, compared to previous generations. This characteristic of millennials can be seen in the way they invest their money: they are willing to move away from fixed deposits and RRSPs that the boomers swore by and are looking to invest in stocks, cryptocurrency, and other financial avenues.
Why should Millennials invest?
While more and more millennials are dabbling into investing in different portfolios, almost 50% of the cohort is still waiting to invest until they earn more money. This data contradicts the popular belief that the best time to invest is yesterday, and those who wait are losing precious time to grow their money.
If you are one of those who procrastinate about investing money for later or think you need a 6-digit income to substantially boost your financial growth, you couldn’t be more wrong. Start your investment journey as early as you can as your returns compound with time, and you’ll learn the tricks of the trade to become a more component investor in the future. And, you can start investing with just a handful of dollars.
Investment Tips for 2022
If you are a millennial just beginning to build your investment portfolio or a seasoned millennial investor, these 6 financial tips will help you stand in good stead for 2022:
Robo Advisors to the rescue
Trading in stocks requires constant scrutiny of rising and falling stock prices and earnings, and a good understanding of how the stock market functions. In the recent phenomenon of a surge in GameStop shares created by a group of Reddit investors, many retail investors and short-selling hedge funds that were betting for the company to fail lost billions of dollars.
While it is only human to jump on the bandwagon of a stock market frenzy in an attempt to earn substantial profits, it entails high risks and can cause a lot of damage to your finances.
If you are new to the stock investment game or don’t have enough time to monitor the peaks and troughs of the stock market, then you should explore robo advisors to help you achieve your financial goals with minimal risks.
For the uninitiated, robo advisors are digital portals that control and optimize your investment portfolios through the use of algorithms and data-driven strategies. Robo advisors are very easy to use, as they automate your investments based on your investment budget and long-term financial goals.
They also are pretty inexpensive with an affordable minimal balance to open investment accounts for investors from all walks of life. With minimal human supervision, a robo advisor can adjust your investments automatically based on market fluctuations while focussing on your monetary goals. Thus, if you wish for steady growth of your investments without any undue risk, you can explore the web to find the right robo advisor for you.
ESG Investments can make you a better investor
As more and more millennials are standing up for environmental, social, and socio-political causes, it is time for their investments to reflect their thought process. ESG investments are defined as investments based on non-financial factors such as environmental, social, and governance impact of a company on society.
In ESG investments, millennials pour in money on the company stocks they believe will make a difference to the world they live in. Through ESGs, millennials extend their support to companies whose beliefs align with theirs and hope that it creates a sustainable future for their children.
ESG investments also provide a great learning curve for investors. Since personal beliefs, values, and socio-environmental impact are involved, you as an investor tend to go the extra mile to learn everything about the company including its financial health and revenue model instead of just blindly buying stocks that are on the rise.
ESGs can help you understand how and why a company’s stock performs in a certain way and can teach you a lesson in becoming better investors.
Ditch individual Stock Picking
Before we delve into why stock picking is not a good investment option, it is imperative to understand what stock picking is. Based on market research and analysis, stock picking is a strategy to find the stocks that are most likely to deliver favourable investment returns.
The biggest disadvantage of stock picking is that you are risking a sizable chunk of your investment on hot stocks that can crash anytime due to the volatile nature of the stock market. While you may enjoy rich dividends through individual stock picking, there is an equal risk of losing all of your investments on any given day if stock prices plummet unexpectedly. Also, stock picking goes against the very grain of solid investment strategy of diversifying your assets to secure risk premiums.
On the other hand, instead of putting all your eggs in one basket, you should consider investing in an Exchange Traded Fund (ETFs). Known as a bundle of stocks, shares, and bonds across a stock index, ETFs are carefully designed by an ETF provider to outperform the market benchmark but also minimize the risks of stock trade.
You can buy or sell a unit of an ETF just like any other stock in a stock index. When you select the right ETF managed by a highly experienced fund manager, you are not only diversifying your investments but also enjoying the security of steady returns against minimal market risks.
Don’t rush Into Real Estate flipping
Buying real estate is one of the rare traditional investment strategies that can provide lucrative returns in the long term. Though, if you are buying a house with the intention of a quick flip and sale to rake in profits swiftly, it might not be the apt period to do so.
With the popularity of house flipping shows on TV & the internet, there is a lot of competition in the real estate flipping market. Coupled with rising real estate prices in 2021, you might have to pay a lot more to buy a property. You must also consider the soaring costs of contractors and construction materials that can make your little renovation project an expensive affair.
Given that property rates have been steadily increasing ever since the economy showed signs of post-pandemic recovery, you might not be able to attract serious buyers and face difficulty in selling the flipped house for a decent profit margin.
If you are still interested in doing the flip, you must ensure that you have a business plan in place to tackle any roadblocks. You must build a reliable network of skilled personnel, contractors, and suppliers who can help you renovate the house without emptying your pockets. More importantly, you need to find a realtor who understands your needs and shows you properties in an up-and-coming neighbourhood.
Instead of investing in a flipping business, it might serve you well to take a more conventional route of buying real estate for long-term results.
Mitigate Risks by partly saving Investment Returns
For those millennial investors who have made profits from previous stock trading ventures, it makes good sense to save at least 10% of the returns in a traditional secured investment like cash or fixed deposits sheltered in an RRSP.
This is done to mitigate the risks of losing everything you earned when you deep dive into the volatile world of stock trading once again. By saving just 10% of your profit earnings, you still have a majority of your returns at your disposal to buy stocks, bonds, and ETFs.
Read. Learn. Repeat.
Lastly, never stop reading and learning about stock investment, real estate investments, and more. The world of investments is complex as it is, and with constant changes in the stock market scene, it becomes even more crucial to know about the latest trends in the market.
Remember that knowledge is your biggest power while navigating through the nooks and crannies of investment opportunities. Make the best use of fintech learning platforms that guide you through ins and outs of the trades and investments. The more you read, the more you’ll learn. And the more you learn, the closer you will be to becoming a seasoned investor.
Hari Subramanian is a freelance personal finance writer and a digital marketer at a Toronto-based marketing agency.