Debt is a big factor preventing many millennials from buying into the stock market. For those whose debt is holding back their net worth, saving and investing can be a challenge.
A 2020 analysis from Bank of America found that millennials’ savings are rising, but they “still carrying substantial debt and juggling competing responsibilities.” This situation does not support wealth creation, particularly with the rising cost of living.
The most common obstacles holding millennials back from investing include auto loans, student debt, and cred cards. However, experts note that this generation shouldn’t lose out on the benefits of long-term investing, even if they have to regularly set aside a percentage of their income.
Buckingham Strategic wealth advisor Ryne Vickery told US News My Money that it’s reasonable to repay debt before investing, but doing a little of both is more advantageous.
2. Index Funds
Low-cost, low-fee index funds are an excellent way for millennials to begin investing, especially since young investors can start building their portfolio with just $5 using a digital brokerage. Index funds’ versatility makes them an excellent starting point for those with little disposable income.
Investing comes with numerous risks, but index funds offer diversification — a safer alternative for millennials who have little stomach for risk and can’t afford to lose significant amounts of money when the market takes a turn.
Indexing is a viable method for any age group, but experts suggest dollar-cost averaging for millennials, including routinely recording a set amount to investments. This strategy lowers risk and can support younger investors as they build a retirement fund.
Dollar-cost averaging might allow millennials to purchase more stocks at a lower cost and fewer when prices rise, rather than buying a complete investment upfront.
The market has recently seen a surge of index funds. Experts remark these give millennials plenty of chances to buy investments that they relate to — a pattern that has become prevalent among investors in this generation.