Although many boomers still associate the term “millennials” with reckless youth, millennials on the older end of the spectrum are middle aged now, many with adult children of their own. The youngest are in their late 20s, so in that range, none of them are too young or too old to start creating a lasting legacy of wealth for their posterity.
“You know, as millennials, we’re in this unique spot where building wealth that lasts generations is totally within our reach,” said Kelan Kline, co-founder of the personal finance site The Savvy Couple. “But it’s not a magic trick — it doesn’t happen overnight. It’s more of a slow-cook recipe. It takes a solid chunk of time, a pinch of planning, and a hefty dose of patience. But trust me. It’s totally worth it.”
Here are the investments millennials should make to build wealth for their children and beyond.
Invest in a 529 Plan so College Doesn’t Bankrupt You
The oldest millennials are in their early 40s. Many have children who are already of college age. Many others still have time to plan, though, and with the Education Data Initiative reporting that the average cost of attending a four-year public university is now over $102,000, they’d better take it seriously if they want to have any wealth left to pass down.
“As a millennial parent myself, I’m focusing on the key areas that impacted me the most when I was first starting out, primarily access to education and housing,” said Jeremy Grant, founder and CEO of Knocked-up Money, a personal finance blog for parents and parents-to-be. “Invest in your child’s future education by consistently funding a 529 Plan. Start early and take advantage of compound interest — every penny counts. 529 Plans are tax advantaged when used for approved expenses. You can also switch beneficiaries if the intended child decides to take another path.”
Invest in Insurance — Your Life Is Worth a Fortune
The best thing you can do for your children is stay healthy and live long. However, if fate has other plans, don’t let your income die with you.
“Permanent life insurance can be a great way to build generational wealth,” said Eric Mangold, founder of Argosy Wealth Management. “It is something that can grow over time and provide a safeguard against market downturns, as well as tax benefits.”
Many other experts recommend term life policies instead. Talk to a professional to decide which is right for you, but either way, the stakes are too high to go uncovered.
“Should anything happen to me, my family will get a significant windfall that will allow them to take care of any pressing financial concerns and to set themselves up financially for any future goals they may have,” said Jeneé Murphy, an accountant, financial advisor, certified life coach and millennial. “Life insurance is an easy way to duplicate yourself financially in the event you can’t be with your loved ones physically.”
According to Forbes, the average 20-year, $250,000 term life insurance policy costs $13 a month or $159 a year for a 30-year-old man and $12 a month or $142 a year for a 30-year-old woman.
Land and property have been the ticket to generational wealth in the United States since the country’s inception — and nothing has changed.
“It’s critical for millennials to understand that investing in real estate, especially investment properties, multiplies your wealth far more rapidly than the traditional investment market route,” said Jay Garvens, a Colorado Springs-based business development manager for Churchill Mortgage. “A rental property allows the middle class to obtain residual income. I truly believe this is one of the last investment routes to become a middle-class millionaire. You purchase the investment and your renter pays it off for you. This route is far more attainable than other residual income streams, such as stock dividends or royalties.”
Mason Whitehead, Garvens’ colleague at Churchill Mortgage, agrees — regardless of your age or generation.
“Real estate is usually the top wealth builder for all Americans,” he said. “The IRS reported that 71% of all Americans declaring $1 million or more income on their tax returns during the last 50 years were in real estate or related activities, so there is a very high correlation between making money and owning real estate.”
Real Estate vs. Stock Market
There is no ETF in the world that can replicate the triple threat of passive rental income, building equity and capital appreciation.
“Most Americans invest in the stock market through 401(k)s and IRAs that only offer capital gains,” said Garvens. “Very few people accumulate common stocks that have residual dividends. Purchasing a house provides you with an asset that has capital gain potential, as well. Investment property ownership allows you to take advantage of capital gains and residual income through rent, whereas traditional investments rarely offer this benefit.”
He offered the following example.
“If you take $100,000 and invest it directly in the stock market and make a 10% return, your money grows to $110,000 in that given year,” said Garvens. “If you take $100,000 and invest it in the purchase of a $400,000 home and it appreciates 10% to 440,000, your $100,000 investment becomes $140,000 in that given year. You end up making a 40% ROI annually, and that doesn’t include the principal reduction or the tax incentives of investment properties.”
The Stock Market Is Still the Simplest Investment of All
Real estate can be a lucrative endeavor, but it can also be complicated, time-consuming and expensive. The stock market is none of those things, which is why it remains the world’s most accessible wealth-generation machine — especially now that no-fee brokerages and partial-share investing are the norm.
“Investing in the stock market provides millennials with the opportunity to capitalize on the power of compounding over the course of time,” said Michael Hammelburger, financial advisor, business consultant and CEO of The Bottom Line Group. “Millennials have the opportunity to capitalize on the long-term growth of the market if they are disciplined enough to make consistent investments in a diversified portfolio of high-quality stocks or low-cost index funds. The compounding effect, in which dividends and capital gains are reinvested to generate additional returns, is something that this strategy takes advantage of. It is absolutely necessary to keep a long-term perspective and to continue investing even when the market is performing poorly.”
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