Millennials get a lot of stick for things that often aren’t their fault. Journalists enjoy lambasting the generation without actually saying anything specific – and often refer to things such as “avocado toast” as a reason why many Millennials struggle to manage their own personal finances.
But the game has changed. We are now in an unprecedented era of low interest rates – and those interest rates don’t seem like they will be rising any time soon.
Millennials don’t have the luxury of investing in high-yield bonds and achieving attractive low-risk returns on our money. Those days are gone. These days, savers are punished because any money left in a bank account is swiftly eroded year on year by inflation.
So, the options available to Millennials are to spend and enjoy the money while it’s there (which many do) or to invest in a place where there’s a risk of losing money, like in equities.
I’m here to tell you that we should embrace that risk. Investing in shares will leave you feeling satisfied long after that avocado toast is just crumbs. Here’s what to look for:
Growth stocks are great for Millennials. This is because we have a long period until retirement, and so we can afford to take on extra risk. That doesn’t mean we should pile all of our money into just any stock though – we have to be selective.
Let’s be honest, buying FTSE 100 companies is both 1) boring, and 2) unlikely to compound our capital at a quick rate. That’s because these companies are already well established, with strong and predictable cash flows. Many of these companies also pay a dividends, which makes them great for people who are reaching retirement and therefore need to be more risk-averse.
But we want to be risk-seeking, because we have the benefit of time in which to make up our losses.
We should only consider companies that are profitable. Companies that are not profitable are just a gamble – and as investors we want to grow our capital. If you’re ever tempted to buy a company that isn’t profitable, simply head down to the casino instead, because it’s much cheaper.
Management are buyers
If management can’t be bothered to buy – why should we? If we are going put our hard-earned cash in the trust of a board of directors, then it’s important that we only place our capital with those who deserve it.
Always check director compensation and director shareholdings. Directors who pay themselves well above the industry rate and own very little in the way of stock, are maybe not the directors who are motivated to create and drive real shareholder value.
Finally, be patient. Growth companies can be volatile, and it’s easy to bank a short-term gain thinking you’re a genius because you made a quick profit. We’ve all done it. I know I have. But I’ve also seen what happened afterwards, as the share price continued to rise without me. If the reason for investing is the same, then stay invested.
Sometimes the best stock to buy might just be one you already own.
Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.