According to a study by the New York Federal Reserve, the total wealth for Americans under 40 shot up 80% to $9.5 trillion from the first quarter of 2019 to the third quarter of 2023. Younger people had their wealth increase outpace older generations due to their investments in stocks, as the S&P 500 increased around 90% during this time period.
Find Out: I’m an Investor: I’m Making These Money Moves Immediately If Trump Wins
Learn More: 7 Reasons Millennials Must Speak To a Financial Advisor Before Spending $10,000 or More
Millennials are generally defined as being born between 1981 and 1996, putting them at roughly 28 to 44 as of 2024. At this point in life, many Americans haven’t yet reached their peak income years but are often burdened by student loans and other debt, from credit cards to home mortgages to auto loans and more.
We will examine the best investment strategies for millennials looking to grow their wealth more.
High-Yield Savings Account
While it’s true that a high-yield savings account won’t make you rich, it’s a cornerstone of building long-term wealth. A high-yield savings account will protect you from taking on even more debt if you run into any financial emergencies, such as damage to your home or losing your job.
“For a savings account, having three to six months’ worth of expenses is recommended as an emergency fund — though during uncertain economic times, a year’s worth of expenses has been recommended,” said Kristy Kim, a banking expert and founder of TomoCredit.
Experts recommend having at least three to six months in an emergency fund but start by putting at least $1,000 aside. This will cover many of the day-to-day emergencies that you might encounter.
As an extra bonus, you’ll earn a decent income from your high-yield savings account in 2024, perhaps up to 5%.
Be Aware: In 5 Years, These 2 Stocks Will Be More Valuable Than Apple
401(k) Retirement Plan
“When it comes to saving for retirement, every penny counts,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com. “The more money you save, the more you can invest, and the greater chance you have at building a strong retirement savings fund.”
If available, one of the first and best investments you can make as a millennial is into your company’s 401(k) plan. For starters, contributing to a 401(k) plan is so easy that you might not even notice it over time, as money is taken out of your paycheck directly before it ever reaches your hands. Not only are you not taxed on that money, it will grow tax-deferred until you withdraw it in retirement. Perhaps the best feature, however, is that your employer will likely match at least a portion of your contributions, depositing what amounts to “free money” into your account. This can make even modest contributions on your part add up over time. Start with a small percentage, perhaps 2%-3% of your paycheck, and slowly increase it until it reaches at least 10%-15%.
Kullberg added, “One of the best ways to stretch your retirement savings further is to use a retirement savings account with tax advantages to invest that cash. Do some research on whether a 401(k) or IRA — or both — is right for you.”
Index Funds
Since so many millennials had their fortune increase through stocks, you’ll want to consider looking into index funds so that you don’t have to try to choose individual stocks. Famed billionaire Warren Buffett advocates low-cost index funds for nearly everyone, and his reasoning makes sense. According to Buffett, investing is a simple game, but those with a vested interest try to make it more complicated. As the long-run track record of active managers doesn’t fare well against the S&P 500 index after fees are factored in, it can be a good option — especially for beginning investors — to use a no-commission broker and add to shares of a low-cost S&P 500 index fund.
Fractional Shares
If you prefer to own individual stocks, thanks to advances in financial technology, you can now assemble a diversified portfolio of equities for just a few hundred dollars — or even less. Brokers like Schwab now offer fractional shares of certain stocks that you can buy for no commission and with an investment of just $5, and sometimes even less. That means you can buy partial shares of 20 different stocks for just $100, and you can add to your diversified portfolio at any time. This can make investing much simpler — and much less risky — than saving up a large sum of money just to buy a single share of a prominent stock.
Robo-Advisor
Professional portfolio management used to only be available to investors with at least $200,000 in their accounts. And while the portfolios developed by robo-advisor or “automated investing” accounts aren’t as actively managed as those high-end private accounts, they do an excellent job at assembling a diversified portfolio of exchange-traded funds based on your investment objectives and risk tolerance. Most robo-advisors have small or nonexistent minimum investment requirements and charge just 0.25% of assets or even less to manage.
Real Estate
The final best investment for millennials is real estate, as housing prices have shot up 54% since 2019, according to The Washington Post. Earlier this year, the National Association of Realtors (NAR) shared that millennials had become the largest group of homebuyers at 38%, up from 28% last year. Purchasing real estate as your primary residence or as a rental property can be one of the top investments for millennials.
However, it’s worth pointing out that young investors will want to ensure that they build up their emergency savings first to have the financial resources to become homeowners. This is why it’s crucial that millennials start off by investing in their emergency savings and retirement before taking more significant risks like real estate.
Remember To Start as Early as Possible
The key to investing isn’t being the world’s greatest stock picker but simply to start as early as possible. Compound interest only really makes its impact felt after many years, so you won’t benefit as much if you start 20 years before retirement as opposed to 40. A simple mathematical example proves this.
Imagine you invest in an S&P 500 index fund that returns 10% per year on average. If you invest $200 per month starting at age 27, you’d end up with a bit over $1 million by age 65. But if you wait until age 42, your nest egg will only reach about $213,000. That’s a massive, life-changing difference. In fact, to reach a $1 million nest egg under these parameters and starting at age 42, you’d have to contribute closer to $950 per month rather than just $200.
Martin Dasko contributed to the reporting for this article.
More From GOBankingRates
- 7 Reasons A Financial Advisor Could Boost Your Savings in 2024
- I'm an Economist: Here's My Prediction for Social Security If Kamala Harris Wins the Election
- 6 Strategies Anyone Can Use to Pay Off Debt
- The 6 Most Harmful Myths About Debt -- and The Surprising Reality
This article originally appeared on GOBankingRates.com: 6 Top Investment Strategies for Millennials
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
