I’m A Financial Advisor: 5 Investments Every Gen Zer Should Make Before Turning 30
For the generation that came of age during the Great Recession, building wealth hasn’t been easy. They entered adulthood saddled with student loan debt, stagnant wages and sky-high housing costs in many major cities. But difficult doesn’t mean impossible. And the sooner you start making smart investments, the better off you’ll be down the road.
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One of Gen Z’s biggest advantages when it comes to investing is the extremely long time horizon. If you’re in your 20s today, you have 40 or even 50-plus years ahead of you before you retire. This lets you make investments that will maximize their growth over these decades.
To get their insight, we spoke to three financial experts: Peter Tanous, chairman emeritus at Lynx Investment Advisory; Thomas Brock, CFA®, CPA and expert contributor at Annuity.org; and Mark Charnet, founder and CEO of American Prosperity Group. Here’s what they said.
Stocks
Back in your parents’ or grandparents’ day, investing in the stock market seemed reserved for the wealthy elite with premium brokers on speed dial. But today, we have access to low-cost trading platforms and a world of information at our fingertips.
“If a young person wants to retire with several million dollars, history shows that the only way to do that is to invest for several decades in the U.S. stock market,” Tanous said. “Just have a fixed amount — it needn’t be very large — invested monthly and don’t bother looking at it regularly. That way you won’t be fixated on the short-term ups and downs of the market.”
Don’t just buy random stocks. Take some time to research the companies you’re investing in. Always diversify, invest only what you can afford to lose, and stick to your strategy through ups and downs.
Before starting, Brock said, be sure that you have at least six to 12 months of living expenses. Once you do, “[i]t is time to load up on domestic and international stocks. Ideally, you should do so in a highly diversified and economical manner.”
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ETFs
If constructing and managing a portfolio of individual stocks seems intimidating, an exchange-traded fund (ETF) offers an easy way to invest in an entire basket of stocks or other assets. There are ETFs that track major indices like the S&P 500, as well as funds focused on particular industries, investment styles and even themes like environmental sustainability.
“For completely hands-off investors, an all-in-one way to achieve real-world exposure is via a global ETF, such as Vanguard’s Total World Stock Index Fund (ticker: VT),” Brock said.
ETFs take the guesswork out of asset allocation while still allowing you to avoid fees associated with actively managed mutual funds. They’re incredibly versatile tools for Gen Zers just starting out. You can diversify and ramp up your investing over time by gradually adding new ETFs to balance your risk exposure.
Mutual Funds
Though often more expensive than ETFs, mutual funds bring Gen Z investors another way to harness professional portfolio management. With a mutual fund, a team of analysts researches and continually rebalances a basket of stocks, bonds or other securities to deliver on a particular investment strategy or benchmark.
“These could include a domestic growth fund, an international growth fund, a high-tech growth fund and a large cap value fund for diversity,” Charnet said. “This is a manageable plan that should be continued until retirement age.”
It’s hard to beat the convenience and diversification of mutual funds. For Gen Zers looking to systematically invest for future growth, building a portfolio around different types of stock mutual funds is a great strategy.
Life Insurance
When most people think about life insurance, they think about providing for their family in the event of an untimely death. But certain types of life insurance policies can offer much more — they can essentially serve as tax-advantaged investment vehicles.
“I believe every person under the age of 30 should consider an overfunded life insurance policy that offers a long-term care benefit, terminal illness benefit, as well as the ability to borrow income, tax-free, for their retirement,” Charnet said.
An overfunded policy allows you to fund the cash value beyond what’s needed for just the death benefit. This allows you to take out tax-free loans during your retirement. While there are higher upfront premium costs, if you make this investment as early as possible, you can really maximize its growth. An overfunded $1 million whole life policy purchased at age 25 could realistically grow to over $4 million in cash value by age 65.
This strategy isn’t for everyone. But if you can afford it, a policy like this could be an incredible component of your retirement plan.
Real Estate
Real estate may seem like an outrageous investment for a generation already struggling with a housing affordability crisis. But if you’re able to pull it off, owning property still represents one of the most proven paths to wealth.
Invest in the options above before starting down this path, and meet with a financial advisor to be sure this option makes sense for you. As you diligently contribute to your investments over time, your advisor should let you know if it makes sense to diversify a portion of your gains into other income-producing investments.
“Perhaps some effort may be put into looking for a real estate purchase that may generate additional income,” Charnet said.
Start small if needed through a real estate investment trust (REIT). The goal is to start building equity. Owning your own home is icing on the cake that allows you to start paying yourself instead of a landlord.
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This article originally appeared on GOBankingRates.com: I’m A Financial Advisor: 5 Investments Every Gen Zer Should Make Before Turning 30
