Investing Strategies Each Generation Is Using To Build Wealth
Building wealth is a lifelong endeavor, but it can look different at different stages. Here are the investment strategies of the four generations currently in the workforce and how they are building wealth.
Baby Boomers (Born 1946-1964)
Baby Boomers have already done most of their wealth-building as they are in or near retirement. This generation was raised by savers (the Silent Generation) and has also benefitted from a sharp rise in real estate values.
Stay the Course
Warren Buffett was famous for saying, “The first rule of investing is, don’t lose money. The second rule of investing is, don’t forget rule number one.” Baby Boomers, who will retire soon if they haven’t already, would be wise to heed this sage advice. Having accumulated wealth through savings, appreciation, and inheritance, the strategy for Boomers is just to hang on to what they have.
Plan for Wealth Transfer
According to Nasdaq.com, Baby Boomers have half of the total wealth in the country. Much of this is likely to be passed on to subsequent generations, but with people living longer and health care expenses rising, it’s important to plan for that transfer of wealth while you still can. Planning for long-term care expenses and creating an estate plan are important considerations for Boomers.
Gen X (Born 1965-1980)
Gen Xers not only lived through the Great Recession of 2008 – 2009, but they were likely just starting their careers or getting established. Given that this generation was aged 28 – 43 during that time, it likely had a significant impact on their attitudes toward building wealth.
DIY Investing
This generation also understood what Bernie Madoff and other schemers did, and as a result, they are less likely than any other generation to work with a financial advisor. Between mobile banking and online investing, Gen X is taking investing into its own hands to save money and have more control.
Wealth Transfer
While not an investment strategy per se, Gen Xers will likely benefit from inheriting wealth from their Baby Boomer parents. Understanding their parents’ wishes and the likely impact of their particular situation regarding inheritance will help Gen Xers know what to expect.
Millennials (Born 1981-1996)
According to CNBC, millennials are behind in terms of wealth accumulation. This is due to several factors, including the Great Recession, which hit at the beginning of Millennials’ careers and may have gotten them off to a slower start, and exorbitant student loan debt. However, with 20 to 35 years left until retirement, they can still catch up.
ETFs for the Win
Retirement savings are crucial for this cohort, and given their time horizon, a set-it-and-forget-it approach may be warranted. Investing in exchange-traded funds (ETFs) allows you to take advantage of market returns without the risk of picking individual stocks. Commissions also tend to be lower than for mutual funds, putting more of your money to work for you.
Know Your Retirement Plan
Saving for retirement has never been easier, but that doesn’t mean it’s simple. Millennials would do well to fully understand their workplace retirement plans – or what their options are if they’re self-employed. Max out your contributions, if possible, but if you can’t, at least contribute enough to get the company match – that’s free money. And don’t sleep on the health savings account. You save pre-tax dollars, and you can then withdraw tax-free money to use for medical expenses. You can roll over what you don’t use each year.
Gen Z (Born 1997-2006)
The youngest members of Gen Z are just now getting into the workforce, whereas the oldest are in the early years of their careers. This cohort has the most options when it comes to building wealth, and time is on their side.
Entrepreneurship
Gen Z has a more positive view of their ability to obtain generational wealth than the population as a whole, and they view entrepreneurship as the path to get there. More Gen Zers than the general population believe that starting their own business is the way to become successful enough to support their family in future generations.
Technology
Gen Z is the first generation to have grown up with the internet, so it’s no surprise that their investing and wealth-building strategy revolves around technology. According to a YouGov survey, over half (52%) of GenZ respondents agree that “cryptocurrencies are the future on online financial transactions,” compared to 13% of Baby Boomers.
Compound Interest
With the longest time horizon of any generation that’s working, Gen Z will benefit the most from the magic of compounding interest. By saving and investing regularly, they can see their wealth grow over time.
Building wealth takes dedication, perseverance and knowledge. While each generation may have strategies they prefer, the common denominator is action. Making active saving and investing a priority will build wealth now, and for generations to come.