Finding Opportunities in Tech Space - OCL, XRO

Summary

• Investing grows your money
• Beneficial in the long-run
• Hedging against inflation
• Financial independence and early retirement
• Helps in keeping up with the trends in business

No doubt, in contemporary world with advanced demand and lifestyle changes, millennials are more stressed about making money. The Gen Y youth requires money to fulfill their modern needs, whether related to luxury lifestyle or to fund the education of their children, for vacations and others.

The young generation of 21st century is confident, ambitious, and achievement-oriented while carrying various array of interests and hobbies. The previous generation people struggled for owning a house, but the youth of the modern times is attracted towards luxury living with high interests for luxury car, food habits, travelling, shopping, education etc. Millennials always tend to seek new challenges in their life.

With this comes the need for earning more as well as securing their financial position. In today’s competition environment, the youth tends to develop stress if they are not able to make good money to sustain their modern lifestyle. Besides, they are also worried on investing judiciously and saving for future retirement planning.

To overcome this financial stress, millennials crave for amassing wealth as well as engage in efficient financial planning. There are several investment options they can rely on, such as savings in banks, investing in mutual funds, equity markets, gold etc.

Even if you are investing 10 bucks a month, you are in the game. Yes, the variety and volume of financial information can be overwhelming, but there is a myriad of smart investment tips available today for millennials to capitalise on.

Amidst world economic slowdown caused by the unprecedented crisis arising from the coronavirus pandemic, US-China trade tensions and devastated oil sector, some market experts believe Equity Markets to be one of the best avenues to park funds for capital appreciation and wealth accumulation.

(FTSE 100 index 10-year chart, Source: EODHD/Others, Thomson Reuters)

From January 2010 to December 2019, the London’s broader equity benchmark index, FTSE 100 or Footsie delivered a price return of more than 45 per cent. In simpler terms, this means that if you had invested a sum of £10,000 in January 2010, it would have grown to £14,537.39 by the end of December 2019. In the long run, the invested capital in the stock market could grow by leaps and bounds, unlike other asset classes such as real estate, bank deposits or gold. In addition, passive income in the form of dividends can also be generated from equity investments. The beauty of passive income is its scalability unlike active income.

What probably holds back millennials? Perhaps, these youngsters are wary of events such as the great financial crisis of 2008 and now the coronavirus pandemic, fearing that such events might completely erode the value of their stocks. However, this is not completely true. In fact, as can be clearly seen in the chart, despite several crisis, the overall performance of the index has gone up. In the present scenario, it holds true that the stock markets did see substantial wealth erosion. Businesses were forced to pile on debt due to the unprecedented crisis. The job markets also witnessed a lot of redundancies. But many companies focussed on strengthening their fundamentals and changed their business strategy to come out even stronger than before. Therefore, this is just a phase and millennials should not shy away from investing. It is an ideal time to consider businesses with sound fundamentals and resilient business models to include in one’s watchlist.

Below are the five reasons as to why millennials should be investing in equities.

Investing Grows Your Money: Investing allows you to significantly grow your money over time thanks to the power of compound returns, a single penny could grow into millions of dollars, given enough time. Compounding can be called the Eighth Wonder of the World. For instance, if you put $5,000 in an account with an interest rate of 7 percent and contribute an extra $200 a month, after 30 years you’ll have a little over $284,000. Therefore, investing is a very good opportunity for the millennials to fulfil their luxurious dreams.

Beneficial in the Long-Run: As an asset class, equity is meant to meet the long-term financial goals of an investor, which means one should have an investment horizon of 5 years and above. If one puts in his/her money for the short term, the value of the investments can fluctuate a lot in the short-term for months or even a couple of years. Long term objectives such as creating a retirement fund, creating a college fund, long term wealth creation only makes sense when investing in equity. Staying invested for longer duration takes care of stock market crashes and other systematic risks. Millennial being young, have ample time for investing at their end. In fact, the greatest advantage that the millennials have is time. Hence, they can easily invest for a long-term.

Also Read: Performance Review of Two Technology Stocks - Maestrano Group PLC & IDE Group Holdings PLC

Hedging against Inflation: Inflation, like interest rates, is low right now, at least as the government officially measures prices in the economy, due to the deadly impact of the coronavirus crisis that has push the UK economy into a recession. However, most of the times, this is not the case. Mostly, inflation keeps rising in a growing economy. We need to keep in mind that any level of inflation erodes the purchasing power of our money over time. Suppose the cost of living increases just 2 per cent a year for the next 10 years. That would mean that we'll need $1.22 a decade from now to buy what $1 buys today. If the investments don't rise more than the inflation, our purchasing power will decline. Stocks have done a good job of beating inflation over time. They also act as a hedge when inflation is low and stable. Whether the inflation is low or high, stocks have the ability to outperform.

Also Read: Review of Some Gold Stocks on LSE Amid Gold’s Surge to Historic High

Financial Independence and Early Retirement: Financial Independence, Retire Early (FIRE) is a financial movement that allows individuals to retire early by way of rigorous savings and investments. For millennials looking to attain financial independence and early retirement, it’s always important to make the right kind of investment. Investing in investment instruments such as equities offers us with inflation-beating returns.

Helps in keeping up with the trends in business: Spending time on researching and learning about the markets by reading articles, helps in keeping up with trends and becoming more knowledgeable of the business climate. The road to learning on how to invest is certainly a journey that can’t be learnt over night. When millennials will study about the market, they will have more knowledge about the economy. It will eventually help them in timing the market. They will know when to buy, sell or hold their equities.

Also Read: Equity Options: 5 reasons These can Bring a Change to your Investment Strategy

To sum up, the millennials have age on their side, and so are able to take the plunge for making equity investments with a long-term horizon. It can fulfil their goals of early retirement and financial planning. It is one of the best hedging tools against inflation. Last but no the least, the coronavirus pandemic has provided young investors with an excellent opportunity to design their portfolio to match their individual income goals.