Each generation faces different economic conditions, and this has a major impact on their financial habits and attitudes towards investing. Financial experts have explored these differences and identified specific investment tips that can help each generation optimize and streamline their portfolios. Let’s take a closer look at the investment habits and recommendations for each generation.
Baby Boomers (1945-1965)
Baby Boomers are mostly retired or nearing retirement. Financial experts often recommend shifting retirement funds from risky assets like stocks to bonds or money market funds, but “boomers” don’t follow this advice. A full 8% are invested exclusively in equities, while nearly half have a riskier allocation than analysts recommend. Baby Boomers have more purchasing power than any other generation, which affects the investment environment and the economy.
“If you are planning to invest in individual stocks rather than indices, I would only recommend it to investors who have the time and inclination to do intensive research on a given company not only at the time of purchase but throughout the holding period of the stock,” says Jan Večerka, an experienced investor and founder of crowdfunding real estate platform BrikkApp, brikkapp.cz.
Compared to other generations, they have the most assets and prefer a more aggressive risk tolerance for long-term investing. Many of them have also bought houses during their lifetime not only for their own homes but also for investment purposes. This generation has witnessed significant growth in property values over several decades, allowing them to build wealth through these assets. This was confirmed by a National Association of Realtors (NAR) statistic that Baby Boomers will make up the largest generation of homebuyers in the U.S. in 2022, at 39%. This generation has been at the top of the statistics in buying and owning real estate since 2001.
Many people of this generation approaching retirement want to continue working in limited scope or less demanding positions to build a solid retirement fund. It is recommended to move retirement funds into less risky assets such as bonds or money market funds. The focus is on fully funding retirement and then addressing child support. Allocating and rebalancing savings for retirement is key.
Generation X (1965-1980)
Members of Generation X, or the “forgotten generation,” are often overlooked in discussions about investments and personal wealth. Many began investing in the late 1990s and early 2000s, but later faced a stock market downturn and their savings barely budged. More often than not, millennials seek the help of a financial professional. They are known as the “sandwich generation” who must take care of aging parents and children. Members of Generation X are skeptical and independent investors. They want to build wealth and achieve higher incomes. But this generation often realizes that diversification is the key to successful investing. That’s why many of them include, for example, real estate in their investment portfolios. However, Generation X has historical experience not only of the property boom in the 1980s and 1990s, but also of the impact of the 2008 financial crisis, which naturally influenced their view of property investment.
Term life insurance is often a good option for them to get adequate coverage at a reasonable monthly premium. They should also consider whether to add health care costs or a nursing home stay to their retirement plan, depending on their plans for the future.
Millennials (1980-1995)
The oldest millennials are approaching 40, where they are experiencing their best earnings, while the youngest are still in college. Millennials are conservative investors, with up to 30% preferring cash over stocks, real estate or bonds. Some millennials prefer socially responsible investments with environmental, governance or social goals. They often opt for simple investments such as target-date mutual funds and exchange-traded funds. They prefer a ‘do-it-yourself’ approach to managing pension funds. Many are concerned about financial risks and distrust traditional investments. Cryptocurrencies and IT advisors are increasingly interesting to them.
Millennials like high-tech investment vehicles, especially because of their love of technology. Impact investing also plays an important role. Many invest in real estate crowdfunding because they find it easier, less risky and affordable. Millennials are expected to continue to grow the real estate crowdfunding market due to low interest rates and property prices.
“I think real estate crowdfunding is a big trend for the generation between 25 and 40. There is a significant change there when you compare them to their parents who, if they want to invest, more often than not do it through their financial advisor or fund,” said Večerka.
Generation Z (after 1995)
It can be easy for Generation Z to focus only on the most familiar investments, such as stocks, mutual funds, index funds or exchange-traded funds. Other areas, such as real estate, commodities, cryptocurrencies or starting your own business, require more research. It’s also important to consider high-yield savings accounts, money markets and bonds. Generation Z typically prefers a flexible lifestyle and mobility. Many are not ready for the long-term commitment associated with owning, for example, a property, which may affect their approach to buying one. Instead, they may prefer to invest in a real estate fund, real estate-related stocks or other liquid assets.
Investing at a young age is crucial for them to benefit from long-term investments in the future. The earlier they start investing, the better. They can take inspiration from past investment strategies.
“But that doesn’t mean you dive headfirst into investing based on the recommendations of the first financial adviser you meet. Start educating yourself on investing, read up on the options and start investing from small amounts in multiple projects or assets,” recommends Večerka.
Different investment strategies for different generations
The investment strategy of each generation is based on their economic and living conditions. Baby Boomers tend to stick to stocks and real estate. Generation X seeks a balance between wealth and cost of living. Millennials prefer simple investments, while Generation Z is beginning to explore investment options. Regardless of the generation you belong to, it’s important to monitor your goals and risks. The investment world is constantly evolving, so it is advisable to be open to new approaches and opportunities. Remember that every investment should be thoughtful and based on a long-term plan. It is also important to build a comprehensive, diversified portfolio of investments to minimize risk and achieve steady financial growth over time.
