The Best Investment Strategies for Each Generation

March 10, 2021 · 5 minute read

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The Best Investment Strategies for Each Generation

The global economy and financial markets have changed dramatically over past decades. So it’s not surprising that different generations could have widely different views on investing. Some may always be stashing cash away for an uncertain future, while others may be saddled with student loans as they try to save for a house.

Take for example, baby boomers, those born between 1946 and 1964. When they were young, women were just starting to enter the workforce, college was significantly cheaper, and the average household income was on the rise.

Then, Gen Xers–those born between 1965 and 1979–experienced the heady days of Wall Street’s boom in the 80s. But millennials, born between 1980 and 1995, came into adulthood during the 2008 financial crisis, when jobs were scarce, money was tight, and college loans hit an all-time high. Meanwhile, Gen Z is still trying to figure out their place at a time when the Covid-19 pandemic has shifted industries and workplaces.

So given these vastly differing experiences, we broke down some basic investment strategies by generation in this article.

Strategies for Baby Boomers

Baby boomers are likely finished or almost done paying off their homes, settling student loan debts, and looking toward retirement. That means their goals have likely changed to learning how to budget their expenses without an income, while still planning for travel, grandchildren and other things.

A 2020 survey found that baby boomers had saved $920,400 in retirement savings, and 82% believed their savings will get them “all the way” or “most of the way” to living out their dream retirement.

Still, a separate study found the average couple will need $295,000 in medical expenses in retirement, excluding long-term care, representing a potential gap in their savings plan. Here are some tips to prepare for retirement:

Strategy 1: Keep Cash on Hand

It’s crucial to still stash away a few bucks for unexpected expenses, such as health care costs. Health-care has continually been one of the largest expenses in retirement. So keep squirreling away just a little bit of your remaining income into an emergency fund.

Strategy 2: Stay Invested Until Retirement

Like all age demographics, boomers too should still live by the idea that they’re in it for the long haul. Get and stay invested in the market via a 401k, IRA, or other long term means, and simply do not touch these accounts prior to retirement age — which is 64 in the U.S. on average.

Related: When Can I Retire?

Strategy 3: Continue to Diversify

You’ve still got time to diversify your funds with things like an investment account with SoFi. There, you can set targeted goals for your age, and depending on market conditions, watch your money grow. Because you have better things to worry about in your golden years.

Strategies for Gen Xers

Meanwhile, Gen Xers are feeling much less rosy about their financial future. A 2020 survey found that 23% feel a sense of progress saving toward retirement, while 22% feel progress about growing their savings to pay for unexpected expenses.

It could have to do with their place in life. Unlike boomers, Gen Xers may still be facing student debt and mortgage payments. However, media outlets have also reported that this generation faces more hurdles like caregiving challenges and job problems.

A separate survey found that 34% of Gen Xers are caring for an aging parent during the pandemic, while only 13% of Baby Boomers are. The former also dealt with more layoffs or pay cuts during the pandemic. With all this financial stress, here are some investing tips for Gen Xers.

Strategy 1: Consider Your Financial Goals

To get to retirement one day, many gen Xers are using what is known as “managed portfolios of investments,” which are personalized and tailored investments made for the specific needs of the individual account holder.

And this targeted approach may be crucial for this middle-of-the-road age demographic as they are finally earning more. However, Gen Xers also need to save for things like retirement and college for their children, as well as pay off mortgages on their recently purchased homes.

Strategy 2: Get Financial Advice

For Gen Xers, who haven’t done much in terms of investing, it’s never too late to start. Seeking help from a credentialed Financial Planner can help them set short-term and long-term financial goals.

Strategy 3: Take on Some Risk

For professionals in their 40s, their money likely has another 20-plus years in the market before retirement. They may still factor some risk into their stocks vs. bond allocations. They’ve still got time to make up any potential losses so it’s OK to put a little on the line in exchange for a bigger win down the road. Just keep it within reason.

Related: Asset Allocation For Beginners

Investment Strategies for Millennials and Gen-Z

Millennials lived through the severe economic downturn of the early 21st century, and were faced with some of the highest unemployment rates in history. So really, it’s no wonder they have felt trepidation toward the market.

A 2019 survey by a media outlet found that more than half felt overwhelmed by financial obligations, compared with 39% of Gen Xers and 31% of Boomers. But half said they had no idea where to begin when it came to investing.

Things might have shifted due to the Covid-19 pandemic however. Despite the initial market volatility, share prices rebounded in 2020 after easy Federal Reserve monetary policy and government stimulus packages helped prop up the economy. A survey released mid-2020 found that two-thirds of millennials and Gen Zers were saying the pandemic had a positive impact on their finances due to spending less.

And 61% of millennials thought it was a good time to invest. Here are ways to get started.

Strategy 1: Start Investing Early

As the youngest set, millennials and Gen Zers have the most to gain by investing early and staying in the game. After all, they will likely have the most time in the market. And if you’re a millennial who doesn’t understand why this matters, let us introduce you to the wonders of compound interest.

Related: A Beginner’s Guide to Investing in Your 20s

If you are employed, the easiest way to dip your toe in the market is to get involved in your company’s 401k savings program as soon as possible. This way, you’ll automatically send a percentage of your paycheck directly into your savings. And if your company has a 401k matching program, you’ll be earning essentially free money.

Strategy 2: Explore Diversification

A great place for young people to consider is to start diversifying their money is by investing in the market via mutual funds or exchange-traded funds (ETFs). Mutual funds are portfolios that gather money from investors and then make investments, typically in stocks or bonds. ETFs are similar in that they’re baskets of securities, but ETFs are listed on public markets and can be traded all day.

These are a low-cost and a diversified way to invest in a portfolio of stocks and bonds. It’s easy to do this via a robo-investor that does all the heavy lifting for you. And that’s exactly what a SoFi Invest account does.

Related: Are Robo-Advisors Worth It?

Strategy 3: Pay Off Debt

Millennials in the graduating class of 2018 have an average student-loan debt of $29,800 and this weight is delaying saving. If you’re feeling burdened by your student loan debt, it may be time to look into student loan refinancing.

You can’t refinance government student loans, but you can transfer those loans to a private lender. The downside is that you may lose access to government programs that offer loan forgiveness or repayment options. But by refinancing with a private lender, you may be able to qualify for a lower rate.

This way, you could significantly lower your interest rate and in turn pay off your student debt faster. Then, you can think about the things that really matter in your life and have a more hopeful (and financially sound) view of the future.

The Takeaway

Different generations face different investment challenges, but by and large, important rules to follow include paying off debt as quickly as possible, as well as saving and investing early.

SoFi Invest aims to be an all-in-one platform for an individual’s investment needs. Users can trade company stocks, ETFs, or fractional shares free of commissions on the Active Investing platform. Those who want help building a portfolio and managing investments can turn to the Automated Investing service.

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