Dude, ETF?!: Why Millennials Have Found their Ideal Investment Vehicle in ETFs

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One of the very first lessons new investors and traders are taught is to never put all their eggs in one basket. Portfolio diversification is a very basic tenet of effective investing, whereby the risks involved are spread out over a number of holdings so that should there be a sudden drop in a holding’s value, an investor will not incur such a massive loss.

There are plenty of options when it comes to where exactly we should invest our money in order to spread out specific and systemic risks in today’s financial market world. The problem for many people out there, especially the younger generation that’s just starting out on building their investment portfolio with meager savings on hand, is the capital requirements needed to build one effectively.

A great solution to their predicament is the availability of exchange-traded funds which actually make it possible to have a diversified portfolio at a cost that’s manageable for the beginning investor. Let’s take a closer look at ETFs and just why they make such a great investment avenue for this segment of investors.

Broad Selection of ETFs
ETFs first made their appearance on the financial market world back in late 80s to early 90s. They have evolved from the rather basic equity index (e.g. the S&P 500) trackers they were back then to become incredibly variegated instruments covering virtually all classes of investment potential. Every asset class, from real estate, bonds, stocks, currencies, international investments and more is well covered. Whatever obscure niche or sector you might think of will likely have a relevant ETF.

The number of U.S.-based ETFs stood at a whopping 1,800 as of mid-2018. Younger generations like to feel unique, and this has only contributed to the seemingly endless proliferation of ETFs handling relatively obscure investment areas. Ultimately, this is to their benefit as they can have a satisfactorily diversified portfolio of investments utilizing the meager capital they have on hand. The market world of yesterday would have made this impossible for them.

Intraday Liquidity
Today’s young investor prefers to have market dealings that reflect their own philosophies and pace of life – fast, responsive, and adaptable. ETFs are perfect for this as they are very liquid in nature and can be transacted throughout the day or night with minimal fuss.

This, again, stands as another reason for ETFs popularity and suitability for young investors, as they will have the opportunity to cash out of an investment relatively quickly should it begin to show signs of falling significantly. These investors cannot afford to lose significant chunks of their limited investment resources as it is.

To further highlight how versatile ETFs are as a result of their innate liquidity, many of them can actually be used in much the same way that regular stocks and other securities are used for intraday trading.

Minimal Entry Barriers
The expense ratios experienced when dealing with ETFs are significantly lower than those you would encounter in the case of mutual funds. As we mentioned above, they can also be traded in much the same way that regular stocks are at no extra cost or fee above what is charged for regular stock transactions. As a matter of fact, quite a number of trading platforms offer ETF holders the opportunity to make transactions at zero cost.

This represents a great help to young investors, whose limited pockets might be inordinately dented by high commissions and fees were they to be charged against their accounts. The market world needs young investors to come aboard the investment train and prepare to take over as the bulk of the investor base in the future, and so the financial market world will only benefit in the long run by making it easier for new players to join the field.

Trend-Setting Nature
Like we mentioned, ETFs are very broad in the scope of their focus because off the highly diverse interests of today’s younger generations, and ETFs have demonstrated their ability to keep up with and mirror this quality.
Innovative products in the ETF world focusing on such niches as governance, social, and environmental investment principles have been unveiled to cater to millennials 86% of who indicate a desire to participate in the financial market world in a socially responsible fashion.