Millennials and Gen Z did not learn to invest the way their parents did. Many opened their first account on a phone app, bought an index fund before they ever met an advisor, and think about what a company does as well as what it earns. Below, we look at the main investment trends for younger Americans and which habits are worth keeping. Some of those habits are genuinely good. A few can quietly cost money. And research firms expect tens of trillions of dollars to pass from baby boomers to their children over the next two decades, so the stakes for getting the basics right are rising.
Investment Trends for Younger Americans Start With Apps
Low-cost index funds and automatic monthly contributions are two of the best habits any investor can have, and younger investors adopted both early. The catch is that the same apps make trading nearly free and constant. Commission-free trading removed one cost but made it easy to buy and sell far more often than a long-term plan calls for, and frequent trading tends to work against returns.
Keep: automatic contributions and low-cost funds. Watch: how often you are trading, and why.
Values-Based Investment Trends for Younger Americans
Interest in funds that screen for environmental, social or governance factors is strongest among younger investors. If this matters to you, look past the fund’s name. Check what it actually holds, what it charges, and how it defines its screen. Two funds with similar labels can own very different things.
Speculative Investment Trends for Younger Americans
Crypto and single “story” stocks attract younger investors in particular. Whatever you think of them, a sensible rule is to size any speculative position so that losing it entirely would be painful but would not derail your retirement savings, your emergency fund or a home purchase.
Wanting Both Technology and a Person
Younger clients expect to see their accounts online at any hour, and they also want a real person who knows their situation when something big happens. Those are not competing preferences. Our clients have an online client login for day-to-day access, and the same advisor they started with when a career change, marriage or inheritance comes along.
The Gaps Worth Fixing Early
The most common shortfalls we see in younger investors are basic rather than exotic:
Leaving an employer match on the table. If your employer matches 401(k) contributions, contributing enough to get the full match is usually the first priority. See Are You Taking Full Advantage of Your Employer’s 401(k) Match?
No emergency fund. Without cash set aside, an unexpected bill turns into selling investments at a bad time or carrying credit card debt.
Not thinking about Roth versus traditional. Earlier-career years, when your tax bracket may be lower, can be a good time for Roth contributions. The right answer depends on your income and situation.
Not planning for an inheritance. Inherited IRAs come with distribution rules and tax consequences, and decisions made in the first year can matter. Our article on handling inheritance and settlement events covers the basics.
Where to Start
Early in a career there are fewer moving pieces, which is exactly why it is a good time to put a plan in place. Our accumulation and planning page explains how we work with clients at this stage. Toomey Investment Management is a multi-generational family firm in Wallingford, Connecticut. Call 203-949-1710 or contact us to talk it through.
This article is for general information only and is not individualized investment, tax or legal advice. All investing involves risk, including possible loss of principal.