Investing for Gen Z: A Guide To Building Wealth

Investing for Gen Z: A Guide To Building Wealth
Photo by Alexander Grey on Unsplash

A 2022 study with over 23,000 respondents found that only 26 percent of beginner investors feel confident about making investment decisions. This figure is significantly lower compared to the confidence of expert investors.

Although feelings of uncertainty are natural for beginner investors, this shouldn’t stop Gen Zers from investing. Even as first-timers, they can be confident in making investment decisions with appropriate knowledge and tools.

If you’re a Gen Z who wants to enter the investing world, this guide will provide tips to help you build wealth efficiently.

Establish Your Financial Goals

Kickstart your financial journey by pinpointing short- and long-term goals. They’ll guide you in navigating your purpose, tracking progress, and handling expenses.

For example, for your short-term financial objective, save a specific amount for a dream vacation. For the long term, focus on building a retirement fund for security and peace of mind.

As such, understanding your goals and their time frames helps you identify which investment methods best fit your needs and resources. Here are the general timelines for different goals:

  • Short-term: When you need funds within 12 months
  • Medium-term: Investments taking one to five years
  • Long-term: Investments beyond five years

Evaluate Your Risk Tolerance

Investments are not identical. Some investments offer higher returns but are high risk, while others are low risk but take time to deliver small returns. 

For these reasons, assess your financial situation and comfort level. Can you afford losses within short periods, or are you willing to take risks for long-term goals?

Investing in short-term goals means you must be mindful of your expenses. In contrast, you can take more risks for long-term goals because you have time to recoup the losses.

Ultimately, your risk tolerance depends on your capability to sustain your investments. It has to balance your needs and comfort with market fluctuations.

Manage Your Finances Wisely

Many Gen Zers struggle to manage their finances due to instant gratification. You may sometimes want to satisfy yourself by buying things impulsively. These impulsive tendencies can negatively impact your investments.

Thus, learn to differentiate your wants and needs by understanding your emotions. How essential is an item that you have to buy it now? Do you need it, or do you just want it? Does this product offer long-term usability?

Answering these questions can help you examine whether something is worth spending outside your budget. This way, you can reallocate your savings without compromising your investment funds.

Managing loans is also crucial for young investors. If you struggle with student debts, consider exploring options—like student loan refinance or consolidation—to lower your interest rates and monthly repayments. 

The goal is to balance your investment and debt management so you won’t lose funds for one or both.

Decide How You Will Invest

Once you have your goals, understand your risk tolerance, and have good spending habits, decide how to invest by choosing a suitable account and type of investment.

Account types:

  • Tax-advantaged: Individual retirement account (IRA) and 401(k) for long-term and retirement goals
  • Deposit: Money market account or savings account for short-term goals
  • Brokerage: An account that lets you purchase, hold, and sell various investments, which is ideal for medium- and long-term goals

Types of investments:

  • Bonds: Loans you lend to borrowers, which are payable with interest until the borrowers repay the complete amount
  • Funds: Mutual or exchange-traded
  • Stocks: Units you’ll own in a corporation
  • Alternative investments: Real estate, cryptocurrencies, hedge funds, and commodities

Go for Automation

Consider automating your investments if you are usually busy or want to lessen the stress of manual bookkeeping. 

Choose an investment platform with automated integrations that align with your goals and risk tolerance. Use it to schedule your monthly, quarterly, or annual contributions. Ensure you can customize the schedules according to your investment plans.

While automation allows you to streamline your investment management, this doesn’t mean you should forget it. Regularly review your investment data to see which areas need adjustments.

Build Your Investment Portfolio

An investment portfolio lets you consolidate your assets. This collection helps you increase your capital appreciation over time, which will be beneficial if you plan to sell some assets in the future.

Your investment portfolio also lets you diversify your income. This way, when one investment performs poorly, you have other assets that help offset the potential losses.

Start Investing To Secure Your Future

Your 20s are the ideal time to build the foundation of your financial security. Early investing gives you enough time to grow your assets and increase wealth to secure your future while turning your financial dreams into reality.

About the author

Mike K. Watson

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