By Abhilash Patel
Technology has fundamentally changed the relationship younger generations have with their finances. From the almost complete transition away from hard currency to the integration of near field communication (NFC) payments with smartphones and watches, money is an integral part of a digital lifestyle. As such, it’s no surprise that millennials are increasingly turning to apps and digital solutions for their investing needs.
Even those with no finance knowledge and minimal exposure to the stock market can now start investing in a range of different products using advanced digital tools that provide real-time insights and hands-on learning.
Steps to Building a Portfolio in the Digital Age
Millennials entered the workforce at a volatile time in the American economy. Many of them graduated from college and entered the workforce shortly before or during the recession that started in 2008, witnessing the substantial loss of both equity and wealth their parents suffered.
Because of the anxiety that runs deep in this younger generation, they are much less likely to actively invest their money in buying stocks. BlackRock estimates that millennials have as much as 70 percent of their money in cash, versus the recommended percentage of 65-75 percent for their age group.
Smart investment builds for the future while preparing for possible disaster in the short term. That means smart planning, such as:
- Setting aside 3-24 months of expenses in case of job loss or disaster.
- Maxing out retirement account contributions annually.
- Mapping a plan for buying a house if that is in the future.
- Creating a Roth IRA to save for the future.
For those who want to take a step beyond these basic investment tips, the stock market is enticing but also, at times, terrifying. There is no single answer for millennials interested in investing. Many factors will determine the best options, including existing debt and student loan obligations, dependents and current employment. But there are several ways you can start right now and tools that make it easier (and more affordable) than ever before.
Program-Based Advisory Services
Automated tools that use advanced algorithms instead of human advisors are becoming increasingly popular, because they allow millennials, who are used to a do-it-yourself approach to most services, to invest in stocks without relying on a human counterpart.
According to a 2015 PwC survey, less than 30 percent of millennials seek a financial advisor’s assistance. They increasingly rely on the lower-fee digital platforms to engage with the stock market or invest altogether. This is a fantastic way to get started and allows you to get into the market without a high barrier of entry, but be sure to approach it with humility, not getting overconfident or assuming the process is simple. These tools leverage AI and advanced technologies to streamline the investing process. But that doesn’t make them foolproof or immune to mistakes by those picking the stocks.
Robinhood
Robinhood is a free stock investment app that you can use directly from your phone to make investments in the stock market. The service is able to do this, they claim, by eliminating manual account management and physical locations in favor of algorithmic investment support through their proprietary apps.
More importantly, the app is designed to be used by a young generation of users who have never invested in the stock market before. It gathers and tracks stocks into personalized feeds and tutorials to guide you through the investment process and provide a streamlined experience that cuts away a lot of the headache in other, more feature-bloated applications.
Acorns
Similarly simple, Acorns is designed to automate the investment process by investing the spare change from your existing purchases and investing them. The process can be manually boosted with whatever amount of money you want to start with and can be set to make investments on a recurring basis every day, week or month.
The investments made by Acorns are diversified across 7,000 stocks and bonds to minimize risk and improve returns, all while greatly reducing the amount of thinking you need to do about the investment process. It’s a passive, background process designed to provide a recurring return, something that fits perfectly with the app-based lifestyle of so many millennials.
Betterment
While not free like Robinhood, Betterment offers exceptionally low rates (0.15-0.35 percent/year) and a more robust investment support portal. Where Robinhood is only useful for stock investment and offers less in the way of curated support, Betterment offers a semi-automated investment process drawn from a variety of funds that their algorithms select.
You can also engage with their customer support seven days a week if you have a question or would like to discuss your investments in greater detail.
Diversifying Your Investments
Outside of stock selection, it’s also important to diversify your investments. Adding mutual funds and ETFs to your portfolio is recommended to offset some of the risk that comes from short-term, aggressive investment strategies that can, at times, backfire if they are the sole vehicle in your portfolio.
That said, technology offers a greater opportunity than ever before to build a robust, personalized portfolio without the high fees and learning curve that comes with a personal financial advisor at a big firm. If you haven’t yet, there’s no better time than right now to start investing and building a portfolio that prepares you for retirement.
--
Abhilash Patel is a co-founder at Recovery Brands.