Gen Z is adopting the FIRE movement (Financial Independence, Retire Early), and strategically planned investment forms one of the integral components of this approach. Drawing learning from the uncertain financial landscape and increased access to financial services motivate the youth to initiate their investment journey. This generation can be experimental; hence, it’s important that they channel their money in the right direction with a proper long-term objective in mind. Here are some of the investment options that Gen Z can consider depending on their current financial status, future goals, and risk tolerance:
Lower risk
For youth wanting to invest in low-risk options, retirement accounts, term deposits, and alternate investments are feasible avenues.
Retirement accounts
For employed youth, retirement accounts like EPFO, NPS, etc., will be beneficial as they offer tax advantages and potential employer matching, making them a great starting point for the investment journey. In fact, many of them also offer low-cost index funds with decent returns.
Savings accounts or term deposits
High-yield savings accounts offer minimal returns and can be a safe haven for emergency funds or short-term savings goals. They are easily accessible and can be insured by the RBI up to Rs. 5 lakh.
Alternative investments
Various renowned platforms distribute multiple high-quality, low-ticket products such as P2P lending, NCDs, corporate FDs, bonds, asset leasing, securitised debt instruments, etc. These are the best investment products for the young generation, as they offer higher liquidity and monthly returns. The returns range from 9% to 20% and usually have the power to combat inflation.
Moderate risk
New-age investors looking for moderate-risk investment options can go for mutual funds, US stocks, and robo-advisors.
Mutual funds
Mutual funds track a portfolio of securities, offer diversified investment options, and charge comparatively lower fees than managed funds. They fall into the category of moderate-risk investment options as their returns depend on their underlying securities, which are volatile in nature. It is advisable that young investors start with index funds and eventually diversify into funds that invest across small caps, mid caps, large caps, and even hybrid funds.
US stocks
US stocks are one of the best options to put your money in and garner profits. Apps like INDMoney and Groww allow you to invest in US stocks, such as Apple, Google, Microsoft, etc. They are beneficial as they are less volatile in nature as compared to the broader market spectrum and are subject to only forex risk.
Robo-advisors
These automated platforms provide investment advice and management based on your goals and risk tolerance. They typically have low fees and minimal investment requirements. As per industry reports, it is expected that 34+ million users globally will use robo-advisors by 2027. This highlights the growing prominence of robo-advisors and their surging usage for investing in the coming years.
Higher risk
The youth of today do not hesitate to experiment. While higher-risk avenues are not preferred, if the return rates are high, the Gen Z population likes to keep its options open.
Individual stocks
Buying shares in specific companies can offer potentially high returns, but it comes with significant risk. Hence, invest the amount that you can afford to lose (that is, if things happen otherwise). And it’s essential to conduct thorough research before investing on your own.
Cryptocurrency
Cryptocurrency has been in the limelight for a long time. Breaking the clutter and providing a new avenue for investment, it is gaining prominence as a new-age investment option. It has a highly volatile asset class but also offers significant gains. However, the downside is that it carries a huge risk of sudden crashes and scams. Hence, invest the amount of money that won’t impact your financial planning. Moreover, it’s critical to know and understand the inherent risks involved in crypto investments.
Gold: physical, digital, and bonds
In a world that is uncertain, gold has significant value, and investment in this precious metal acts as an inflation hedge. It is a strategic investment that can empower the youth financially and provide them with long-term security. While investing in 22K yellow gold is a great option, today we have the means to invest in digital gold and sovereign gold bonds (RBI-issued government securities) as well. The former is a conventional choice, and the latter is a convenient way of investing, with gold bonds giving significant returns and tax exemptions.
The key to investment is to diversify across asset classes
Always remember: The key to investment is to never put all your eggs in one basket. Diversify your investments across asset classes and options to minimise the risk involved. You can also divide your savings between options that provide short-term liquidity and offer long-term gains. Next, you should be honest with yourself about your risk tolerance. Additionally, high returns come with high risk. Hence, you need to make a mindful choice, taking all the factors and possibilities into account. One of the important points to make note of is that you should always do your research and due diligence before making investment decisions based on your risk appetite. Before investing in any product or asset class, learn about it and do a deep dive into its history, dos and don’ts, associated risks, etc. And most importantly, seek professional advice. While the majority of Gen Z prefers DIY options, taking consultations from a professional financial advisor will be beneficial as they will provide the best guidance tailored to your specific needs, financial goals, and circumstances. To kickstart your investment journey, maintain a monthly budget and allocate funds religiously every month. It’s safe to start with small amounts to combat the risk of inflation and losses. Start early in your career trajectory so that you can reap the benefits of returns in the long run.
Gen Z is inclined toward wealth generation and realize the importance of investing for financial security and personal development. They are emerging as the most financially savvy generation of all time. However, unlike their previous generations, they prefer options that are simple and offer attractive returns and features like lower lock-in and easy withdrawals. They also prefer investing via fintech platforms that offer high flexibility, convenience, and seamless experiences. The youth can achieve the vision of financial freedom through strategic investments, but they should be made early in one’s career. Realising this, young millennials are also actively involved in investing. However, diversification across asset classes like mutual funds, stocks, and crypto is essential to minimise risk and maximise returns. A thorough research of market trends and the chosen options is essential to investing safely based on your risk appetite. Knowledge combined with the expert guidance of a professional can provide significant benefits to youth in their investment journey and help them reach closer to their financial goals. The key lies in starting early and investing in the long haul.
(The author, Mr. Bhuvan Rustagi, is the co-founder and COO at Per Annum and Lendbox.)
