{"id":35912,"date":"2021-04-26T21:37:40","date_gmt":"2021-04-26T19:37:40","guid":{"rendered":"https:\/\/crypto-economy.com\/?p=35912"},"modified":"2021-04-26T21:37:40","modified_gmt":"2021-04-26T19:37:40","slug":"a-millennials-guide-to-investing","status":"publish","type":"post","link":"https:\/\/crypto-economy.com\/a-millennials-guide-to-investing\/","title":{"rendered":"A Millennial\u2019s Guide to Investing"},"content":{"rendered":"
\u201cI will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful,\u201d says Warren Buffet.<\/span><\/p>\n <\/p>\n Anyone who knows Warren Buffet will attest that he knows a thing or two about investing. He has always highlighted the importance of herd behavior in investing. Investors flock to an asset class until the price peaks; and then comes the fall.\u00a0<\/span><\/p>\n Millennials have learned to dodge this phenomenon to a great extent, though not entirely. Millennials are far more prudent with their investments than the previous generation and don\u2019t shy away from taking calculated risks.<\/span><\/p>\n For millennials out there seeking some enlightenment before testing the waters in their investment journey, or just looking to gain insight into a new asset class\u2014this guide will talk about some of the best baskets that millennials can put their money in.<\/span><\/p>\n Investment advisors call on the phone, knock at the door, speak on the TV, and yell on the radio\u2014invest in mutual funds, invest in real estate, park the money in deposits\u2026\u00a0<\/span><\/p>\n They\u2019re everywhere!<\/span><\/p>\n It\u2019s only natural to feel overwhelmed with the gazillion investment options these advisers put in front of us.<\/span><\/p>\n We went ahead and put together some asset classes that have been in the spotlight and are currently hot and heavy among millennials. Let\u2019s dive right in.<\/span><\/b><\/p>\n Cryptocurrency is the talk of the town. With prominent tycoons like Elon Musk buying bitcoin worth billions, the prices keep touching a new high each week. Yes, there have been a lucky few who cashed in on this bitcoin wave and made ample wealth. The risks with bitcoin, though, are not everyone\u2019s cup of tea.<\/span><\/p>\n The risks are particularly a problem for millennials who recently joined the workforce because they simply don\u2019t have enough money in the bank to stomach the parabolic fluctuations in prices.\u00a0<\/span><\/p>\n Whether millennials have been in employment for a while, or are just starting their career, there are several options in the crypto-verse where they can put their money.\u00a0<\/span><\/p>\n If you\u2019re planning on buying crypto, <\/span>buy USDT<\/span><\/a> to preserve your value within the crypto space <\/span>and<\/span><\/i> grow your wealth. Don\u2019t take our word for it, let\u2019s look at why USDT is a good bet.<\/span><\/p>\n The first reason any investor will feel reluctant to put money in crypto\u2014<\/span>risk!<\/span><\/i> So, let\u2019s look at how we can address risk when investing in crypto.\u00a0<\/span><\/p>\n In one word: <\/span>Stablecoins<\/b>.\u00a0<\/span><\/p>\n Stablecoins are cryptocurrencies pegged to the value of another asset or group of assets, like fiat currency, commodities, etc. They are designed to eliminate volatility and preserve value.\u00a0<\/span><\/p>\n Let\u2019s understand stablecoins using Tether (USDT) as an example. Tether is pegged to the USD, a fiat. If the USDT issuing entity issues $10 million worth of Tether, it will have an equivalent amount of money in its bank account. This money, in essence, serves as collateral for Tether.\u00a0<\/span><\/p>\n Tether (USDT) has been a champion stablecoin for a while now. Just this week, USDT\u2019s market capitalization on the Tron blockchain <\/span>breached $24 billion<\/span><\/a>, surpassing Ethereum\u2019s $23.4 billion.\u00a0<\/span><\/p>\n Among the stablecoins moving the markets right now, Tether tops the charts and looks the most promising. This makes Tether a great investment option for millennials who seek low volatility in the crypto-verse.\u00a0<\/span><\/p>\n USDT is on its way up, hop on board!<\/span><\/p>\n Does the name ring a bell?\u00a0<\/span><\/p>\n Index funds are the less expensive cousins of Mutual funds. Let\u2019s look at how Index funds differ from Mutual funds in terms of cost structure and management style\u2014the two factors that set them apart.<\/span><\/p>\n Mutual funds are managed by a fund manager who attempts to generate alpha returns by constructing a well-diversified portfolio of securities based on research. The fund manager, naturally, receives loads of cash as compensation\u2014which comes out of the returns generated by the fund.<\/span><\/p>\n On the contrary, index funds are passively managed. They track a benchmark index like the FTSE 100. Essentially, the fund invests in all the securities of an index in the proportion of their market capitalization. Since this process requires no analysis, investors end up paying less in management fees.<\/span><\/p>\n So, what are the risks?<\/span><\/p>\n Well, since Mutual fund portfolios are actively managed, they are diversified to achieve a desired level of risk. Index funds are not diversified, so investors will be exposed to the risk of the overall market.\u00a0<\/span><\/p>\n Investors with a low appetite for risk will find Index funds riskier, and vice versa. Index funds will bleed when the bears rule the market and give you healthy returns when market sentiment is bullish.\u00a0<\/span><\/p>\n Let\u2019s look at the FTSE Developed Europe ex-U.K. Equity Index Fund \u2013 Accumulation, by Vanguard.<\/span><\/p>\n <\/p>\n Source<\/span><\/i><\/a><\/p>\n For those who are new to investing and don\u2019t know what this chart says: it tells us that investing \u00a310,000 in this Vanguard fund in March 2020 would have accumulated to almost \u00a313,500 as of March 2021. That\u2019s over <\/span>34% return per annum<\/b>!\u00a0<\/span><\/p>\n Nevertheless, the 34% return comes with patience. Let\u2019s look at how the fund performed over the past few years.<\/span><\/p>\n <\/p>\n Source<\/span><\/i><\/a><\/p>\n Notice how investors with a one-year time horizon would have lost money had they redeemed their investment in FY 2019-20. If you consider yourself a patient investor and have some money you won\u2019t need for the foreseeable future, <\/span>learn how to buy index funds<\/span><\/a> and start building wealth.\u00a0<\/span><\/p>\n A Lifetime Independent Savings Account (LISA) is a key asset all millennials will want in their portfolio. There are several reasons for this.<\/span><\/p>\n First, free money!<\/span><\/p>\n Each year, investors may put <\/span>up to <\/b>\u00a34,000 in their LISA. When investors add \u00a34,000, the state will contribute 25% of the amount (\u00a31,000) as a bonus. The state will add this bonus for all contributions by the investor until the investor turns 50.\u00a0<\/span><\/p>\n Second, investors earn interest on the full amount (\u00a35,000), not just the \u00a34,000.<\/span><\/p>\n Third, this interest is tax-free.\u00a0<\/span><\/p>\n To be eligible for opening a LISA, you must be aged 18 to 39. Also, you can only use the money in your LISA for:<\/span><\/p>\n It\u2019s important to note that the maximum bonus an investor will earn through the life of the LISA is \u00a333,000. This figure results from the minimum age requirement for LISA (18 years), maximum age condition for bonus contribution by state (50 years), and cap on the yearly contribution (\u00a34,000).\u00a0<\/span><\/p>\n A LISA is a fixed income asset, which means it will reduce an investor\u2019s portfolio\u2019s overall standard deviation (or risk) as well. A LISA is a valuable asset all millennials must add to their investment bucket.<\/span><\/b><\/p>\n Real Estate Investment Trusts are a <\/span>relatively<\/span><\/i> younger class of assets. The underlying idea is the same as that of Mutual funds. A REIT pools money from investors but invests the money in real estate rather than equity or debt.<\/span><\/p>\n Traditional wisdom says real estate is one of the best asset classes. At today\u2019s prices, though, it\u2019s rather daunting to amass enough capital to purchase a property.\u00a0<\/span><\/p>\n Enter REITs.<\/span><\/p>\n They eliminate the core issues real estate investors face: lack of capital and lack of liquidity. REITs enable investors to access the real estate market at a fraction of the capital required for purchasing a property. Investors can also quickly liquidate their REITs investments since they\u2019re actively traded on an exchange.<\/span><\/p>\n Besides, there are several ancillary benefits as well. Their low correlation with equities and debt market makes them a great diversification tool, while still offering the potential for market-beating returns.<\/span><\/p>\n Let\u2019s look at how much the Schroder European REIT delivered over the past one vs. five years.<\/span><\/p>\n <\/p>\n4 Asset classes millennials should consider investing in<\/h2>\n
1. Cryptocurrency<\/h3>\n
2. Index Funds<\/h3>\n
3. Lifetime ISA<\/h3>\n
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4. REITs<\/h3>\n