• Sun. May 26th, 2024

Here’s How Millennials Are Getting Rich Off the Stock Market

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Millennials don’t always have the best reputation when it comes to finances. Plenty think of this age group as frivolously indulging in avocado toast instead of building wealth. But in the past few years, millennials and other young adults have been crushing it when it comes to investing, namely by upping their allocations to stocks.

“As you grow up not only in age but also your asset allocation [and] risk tolerance, your taste buds change in what you invest in and feel safer in,” said Nadia Vanderhall, financial planner and founder of The Brands + Bands Strategy Group and a millennial herself.

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Millennials have faced many unprecedented economic events that may have caused them to avoid so-called riskier assets like stocks because they grew up through periods like the Great Recession. But now, they’re realizing that in a way it’s safer to invest for the long term than to not participate at all, she pointed out.

And equities can potentially provide that long-term security, as the market historically goes up over the long term. Even after briefly crashing during the early days of the pandemic, for instance, the S&P 500 has roughly doubled in value since 2019.

That helps explain why from 2019 through the third quarter of 2023, 18- to 39-year-olds grew their wealth by 80%, compared to 10% growth for 40- to 54-year-olds and a 30% increase for those 55 and older, according to Federal Reserve data analyzed by the New York Fed’s Liberty Street Economics.

Much of that growth is due to rising values of financial assets. For 18- to 39-year-olds — a group that includes many millennials but also some Gen Zers — financial asset values grew by over 50% during this period.

Moreover, the under-40 group had the highest rate of increase in terms of allocating to equities during this period, which helped buoy the value of their financial assets.

“This increased exposure to equities — the fastest-growing financial asset class during the period — enabled younger adults to record higher growth in both financial assets and overall wealth,” as reported by the Liberty Street Economics.

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Time in the Market

Despite these increases in wealth, corporate stocks and mutual funds only account for 25% of financial assets for those ages 18 to 39, compared to 37% for those over 55. So even though millennials have been turning more toward stocks, there’s arguably still a lot of room for improvement.

That’s not to say that stock investing is right for everyone or that there’s a universally preferred allocation percentage. But as recent history has shown, you don’t need to be an expert stock picker to experience gains. In many cases, the act of investing itself in assets like stocks that tend to go up over the long run can pay off.

As Vanderhall pointed out, millennials are keeping in mind the adage that it’s important to have time in the market, rather than timing the market.

A Wells Fargo study pointed out how if you missed the best 30 days of S&P 500 performance over the past 30 years, your returns would have plummeted from an average of 8% per year to 1.8%. Thus, if you try to time the market by sitting on the sidelines hoping to try to find a better opportunity to put your money to work, you could miss out on the handful of days that lead to big results.

And while the Liberty Street Economics study doesn’t dissect what types of equities millennials are investing in, it’s likely fair to say that this age group isn’t just getting lucky by investing in a few single-name stocks that happened to pop during the pandemic.

“While there were meme stocks, there were some meaningful learnings about valuations and building a portfolio that isn’t hyper-focused but secure,” Vanderhall said.

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Willingness To Adapt and Learn

Part of millennials’ stock market success might also be explained by their willingness to adapt and learn what works well for them

For instance, many millennials have been learning that there can be value in incorporating equities into portfolios, even if these are riskier assets in terms of volatility.

“While the valuation of things can change, you learn to measure that within your research and make more sound [decisions],” Vanderhall said. “They are finding the value in holding a variety of financial options.”

For those who haven’t been experiencing the same types of gains that 18- to 39-year-olds as a whole have, you may need to go back and make sure you’re understanding the foundational concepts of stock investing.

“If you feel that you aren’t seeing the gains you hoped, research three times and cut [or] shape once,” Vanderhall said.

Ultimately, building wealth through financial assets typically depends on tried-and-true practices like investing for the long-term in diversified assets, rather than trying to hit a home run by perfectly timing the market or selecting the right stock that’s set to soar.

Remember, “time in versus timing,” Vanderhall said. “Keep building no matter how hard it gets.”

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This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: Here’s How Millennials Are Getting Rich Off the Stock Market

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