The Best $1,000 Gen Z Can Spend on Their Investment Portfolio This Year

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$1,000 won’t change your life, but it can change your life if you put it in the right investments. Gen Z is a younger group, so they have more time to ride market uncertainty and wait for long-term catalysts to pan out.

However, each person has their own risk tolerance. While Gen Z is in a better spot to take risks, it’s still important to consider how well you can manage risks. These are some of the assets to consider.

Index Funds

Index funds are a good starting place for Gen Zers who want to invest in the stock market without taking substantial risks. The Vanguard S&P 500 ETF (VOO) is a good starting point, as it mirrors the S&P 500. This index gives investors exposure to the 500 largest U.S. corporations. The index has several requirements, such as profitability, and it gets rid of some laggards for rising stars every quarter.

It’s also easier to set up automatic transfers for index funds. Many index fund investors buy additional shares each time they receive a new paycheck. They don’t have to monitor price points of individual stocks and decide which one is the most undervalued right now. Index funds make investing easier.

AI Stocks

Artificial intelligence may be the defining technological advancement over the next decade. It’s already received plenty of attention and has high-growth case studies, but we are still in the early stages with this technology.

Corporations are already using AI to generate real profits and results, unlike the dotcom bubble, which featured many speculative companies that had little to no revenue to show for the hype.

Gen Z can choose AI stocks based on their risk tolerance. Established chipmakers like Nvidia and Broadcom are still risky, but they are some of the leaders of the AI boom. Investors can also look at stocks in industries that benefit from the AI boom. 

Crypto miners like IREN and CIFR are benefiting because they have AI chips and electricity. Nuclear energy companies like LEU are also beating the stock market since nuclear energy may be the future for AI data centers. HVAC companies like Comfort Fix are also thriving because the AI data centers need to make big investments in air conditioning to keep the chips running. Smaller companies and firms that operate in adjacent industries require more research and come with additional risks, but they can produce outsized returns.

Dividend Stocks

Investors can choose between dividend income stocks and dividend growth stocks. Income stocks have high yields but typically low returns. These assets are more suitable for people who are middle-aged or approaching retirement. CVS, Pepsi and McDonald’s are some examples of dividend income stocks that haven’t outpaced market indices.  

Gen Zers who want to generate cash flow from dividend stocks should take a closer look at dividend growth stocks. These stocks have lower yields, but the corporations hike dividends at a high rate (at least 8% per year) while generating solid returns. Caterpillar, J.P. Morgan and Walmart are some notable dividend growth stocks that have kept up with major indices while having decent yields.

If you buy dividend stocks with $1,000, do not chase stocks for their yields. High yields can translate into low returns, since dividends represent an expense that a company cannot reinvest into its business. Low-yield stocks with low dividend payout ratios still have plenty of earnings to pour back into their initiatives.

Investors should focus on a company’s financial growth rates, long-term opportunities, and valuation. That truth holds regardless of whether you are buying dividend stocks or not. The yield shouldn’t play a factor in your decision.

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