Millennial investing —
A young Australian investor's guide

Looking to start your investment journey? Find out whether it’s the right time for you, how much, where and how to invest with eToro.

The average age of the Australian investor is starting to drop. Recent analysis shows that younger investors, as well as women, are starting to make up a larger percentage of the trading public.

A variety of factors could be at play — including easier access to news and analysis, increased awareness of the importance of saving and investing wisely, and easier and quicker trades through online platforms and apps. And with progress showing no sign of slowing in the digital age, millennial investing could continue to grow.

Are you a relative newcomer to investing and do not know where to start? This guide will help you decide if investing is right for you. You will:

• Learn how to set goals and limits
• Discover some investment strategies for young investors that can help you choose what to add to your portfolio
• Find out where your fellow millennials are investing their money
• Read some key tax considerations for your generation

Is investing right for you?

When trying to figure out the best way to start investing in your 20s and 30s, it is important to first think about whether or not investing is right for you.

Saving vs. investing

Saving versus investing is a big decision. Sometimes focusing on one or the other is better, while other times, millennials can do both at the same time with great results.

However, the general rule of thumb is that you should try to start saving with an eye on the future by your mid-20s if you want to retire sometime in your mid-to-late 60s.

Some experts suggest starting with a goal of having three months’ worth of earnings saved to call upon in case something goes wrong. Once you have hit that milestone, you could consider putting about 10% of your earnings away for long-term savings.

However, your mid-20s can also potentially be the right time to start investing, especially if you are already comfortable with your savings and are not facing large amounts of debt. This is because, if your investments take a turn for the worse, you potentially have more time for them to regain value, as you most likely still have decades in the workforce ahead of you.

But it is important to remember investing is not for everyone, and, as you will see below, there is a range of factors to consider before getting started.

If you do decide that investing is the right move for you, here is a little introduction to three of the most popular millennial investing options.

Investing in stocks

Stock trading is the go-to option for many first-time investors. There are many reasons for this, but one is that the concept is relatively simple to understand. In the broadest sense, as companies do well, shares go up. Stock trading allows you to share in the success of some of your favourite companies, ones you use in your everyday personal and professional life.

While stocks can potentially be a great fit for you, for millennials, trading stocks is not always the answer. Trading stocks can have many pros and cons, including:

Advantages

• It can be easy to start. While the keys to stock market success might be difficult to find, actual investing has become easier with the help of online apps and brokers.
• A wide range of options. There are many global exchanges featuring thousands of different investment opportunities, with a range of industries, sectors and businesses of all shapes and sizes represented.
• You can stay ahead of inflation. Stock values traditionally grow at a rate higher than that of inflation. That means, especially if you are willing to hold on to your shares for the long haul, you can potentially minimise the impact of inflation.

Disadvantages

• The potential for big losses. This needs to be the first consideration with any investment. There is always a chance that things will go wrong, and you could lose a lot, or all, of the money you put in.
• It can be time-consuming. Finding the time to do ample research, learning how to analyse trends and stay on top of breaking news and analysis can be unfeasible for many prospective investors.
• It can affect you mentally The ups and downs of the stock market can impact your mood greatly, especially if you become a hands-on trader who monitors share values closely. These mood swings can lead you to buy or sell in times of anger or distress, which is a dangerous way to invest.

Investing in cryptocurrency

Recent reports show that millennials are willing to invest in the cryptocurrency market.  One reason might be that younger investors have grown up in a more digital world than older traders, and can be more technologically savvy with a better understanding of digital currency and the blockchain technology behind it.

Another reason might be the incredible growth of Bitcoin (BTC), which broke the $68,000 mark in mid-November. Influential personalities such as Elon Musk and large organisations making big investments in the crypto could be a factor, too.

Tip: The most important thing to remember about cryptocurrency trading for millennials is that the market has shown a history of volatility. Bitcoin itself is especially known for its big swings. Be prepared for rises and falls if you want to get involved.

Micro investing

Micro-investing is about making small and irregular investments from everyday transactions. Micro investing is relatively new to the trading scene. Instead of collecting all of your spare change in a jar and lugging it to the bank to deposit it or exchange it for bills, micro investing sites and apps can take that change and use it to make many small investments for you.

When you make a purchase, the app will round up to the nearest dollar, taking that change and investing it for you.

Learn more about the pros and cons of micro investing below:

Advantages

• Micro investing makes it easy to invest and can help you put more money towards your trades without even really thinking about it.
• It can make you view small purchases as more valuablesuch as your next coffee or clothing
• In addition to convenience, there’s generally no minimum deposit required.

Disadvantages

• On the downside, micro investing might not be as profitable as other forms of investing.
• Micro investing can be great for starters, but those who want to get more serious about investing will probably want to be a little more hands-on with their trades.
• While there are several options for micro investing in Australia, it is important to make sure you invest with a platform such as eToro to avoid hidden fees, which offers 0% commission stock trading and the ability to buy fractional shares.

How do you work out how much you can invest?

Once you decide you do want to invest, it is time to work out how much you can afford to invest. The most important thing to remember is that you should only invest what you can afford to lose. If what you put into the market ends up turning into nothing, you should still be able to live life normally.

As you figure out how much you can invest, consider the following:

What monthly, annual or other regular payments do you have? This includes mortgage or rent, car loan payments and auto insurance, groceries and other essentials.

What are you willing to give up? Sometimes when working out much you can afford to invest, you need to figure out where to make sacrifices. This can often come from your social life, whether it be going out to brunch or spending less on going to the movies or clothes.

What debt do you currently have? Think about any credit card or other debt you have accrued. It can be a good idea to get this under control before allocating too much of your money to invest.

What else are you saving up for? If you have short- or long-term goals of extensive overseas travel or homeownership, you will need to consider any savings you have been putting toward them. More on this shortly.

Where will the money come from? Your wages and job security could play a big role in determining how much you have to invest.

Leveraging

As you do your research, you might hear about something called leveraging. In general, leveraging is borrowing money and using it to fund investments. This can provide you with more capital with which to invest, therefore, helping you to greater returns when things go well. But leverage can also lead to greater losses and can be quite complicated.

It is often better for newer investors to leave leveraging to more experienced traders.

How to set investing goals in your 20s and 30s

Setting investment goals can be especially important for those new to the market. While there is no single best way for millennials to invest, investing randomly does not usually make sense. Solid goals can shape your early trades and help you establish longer-term strategies.

So, you know those goals we mentioned above when figuring out how much money you can put aside to invest? They will also help you to set your investment goals. Perhaps you are hoping to use investment returns to finance a big overseas holiday, buy a car or home or renovate your current place. The time frames in which you hope to accomplish these pursuits are key to setting your investing goals.

For example, say you have a relatively short-term goal of going on a round-the-world trip in two years. Since you hope to save up for this goal within 24 months, you do not have the luxury of riding out wild fluctuations.

That is why more conservative investment strategies could be a good idea. They might not generate the returns of more volatile investments with higher ceilings, but they are less likely to be impacted in the small window in which you are trying to accomplish your goal. Putting your money into savings accounts or ETFs could potentially be good options here.

On the other hand, you might have a long-term goal of saving up for your child’s education or even having enough to live comfortably in retirement decades from now.

While you do not want to be too reckless, the longer time window gives you more time to recover from market volatility. That means you might be in a better position to consider investment options that are riskier, including stocks and even cryptocurrency.

Setting your goals early can also help you to take advantage of something called compound interest. In general, compound interest is the interest you make off the money you have invested. But as you invest more over time, you earn interest on the interest you have already earned. That is what they mean when they talk about interest compounding.

Choosing your stocks

Here are some things to consider when choosing which stocks to invest in:

1. First up, those investment and savings goals we discussed earlier can help guide the way in terms of looking for safer, more conservative options or taking a riskier approach.
2. How much time you have can also help you choose your stocks and investments. Those with the ability to keep an eye on daily news and market movements might be better suited to invest in more volatile stocks, while passive investors might want to take a set-and-forget approach with ETFs, mutual funds and other long-term plays.
3. Try to avoid investing based on emotion. This can be one of the trickier parts for millennial investors just learning the ropes. However, it is a good idea to have some fun with your investing, at least to a certain degree, especially as you are first getting into it.

While investing large amounts based on your interests is not advisable, investing in companies you use frequently, whether it be companies such as Netflix (NFLX), Nike (NKE) or Meta Platforms (FB) (previously Facebook) can make investing more interesting and enjoyable.

Some platforms, such as eToro, offer practice accounts where you can test your strategy before investing real money in the market. For new investors, the option of being involved in the stock market while they are building up savings or figuring out a budget can be helpful in choosing the assets they should invest in down the line.

Tip: It is important to learn the basics of investing before you put your money on the line, so you can make informed financial decisions.

Diversifying your portfolio

It is a good idea to diversify your portfolio. This is true not only in terms of which stocks you buy, but also in terms of which overall investments you make. While you do not have to venture outside of stocks if you do not want to, investing in multiple markets can help you guard against one crashing.

Diversifying keeps you from “putting all your eggs in one basket.” If too much of your portfolio is tied up in one company, you are relying heavily on their success. By spreading your positions out, you give yourself the chance to potentially take advantage of positive returns across multiple sectors, while also avoiding your portfolio tanking if one company does poorly.

Where are millennials investing their money?

According to the ASX 2020 Investor Study, only a third of the next generation of investors hold Australian shares (as compared to 77% of retirees). However, younger investors are much more likely to hold ETFs, which provide a way of diversification that suits a generation with generally less investing capital to start with.

So, where are millennials investing in the stock market? One sector that appears to be popular with younger investors is technology stocks. This follows similar patterns from years past, in which younger investors new to the market have tended to choose stocks with which they are familiar. For a generation growing up in a digital world, this sector is technology.

Popular technology stocks include those of Google’s parent company Alphabet (GOOG), Apple (AAPL) and Amazon (AMZN).

Newer investors are also giving priority to ethical factors when choosing their investments. Socially responsible investments (SRIs) are quickly becoming a hallmark of the younger generation of investors, who prefer companies with strong environmental, social and governance (ESG) standards.

As sometimes happens in times of recession, many investors in the past 12 months have bought blue chip stocks at a discount in temporarily impacted industries such as travel. Investors under the age of 40 did the same.

Key tax information for millennial investors

You will also want to familiarise yourself with some of the rules and regulations around share trading tax in Australia. If you have bought or sold crypto in the past financial year, there are also crypto taxation regulations to consider.

Perhaps the most important thing to bear in mind is capital gains tax, which is taxed under your marginal tax rate. Capital gains  generally refers to the money you make from investing.

However, if you hold the investment for 12 months before selling it, you only have to pay half the amount of capital gains tax under the capital gains tax (CGT) discount. Conversely, capital losses can offset your capital gains.

Understanding positive and negative gearing

Another tax consideration can be positive and negative gearing. When you are positively geared, it means you have borrowed money to invest and you are making more money from the investment than it is costing you in total. You must pay tax on that positive difference.

However, when you are negatively geared, you have borrowed money, but are bringing in less money than the cost of the investment. That negative difference can be claimed as a tax deduction. Similar to leveraging positive and negative gearing might not be a consideration for younger, more novice investors.

To ensure that you pay the correct amount of tax — and take full advantage of any tax benefits available — it is important that you:

Keep good records. Make sure you know how to use any record-keeping features of your chosen trading platform so that you can retrieve the dates on which you bought and sold any assets and the values of your investments at those times.

You also want to track any other income from your investments — such as dividends — and calculate total capital gains and losses in any given tax year.

If you have any doubts or questions about the tax implications of investing, you can get more information about investing tax from the Australian Tax Office or speak to an accountant or other tax professional.

Increasing numbers of millennials are investing in stocks and other markets, and building your own portfolio could be the right move for you. Head over to eToro today to learn more and find more investing tools that can help you on your way. You can even check out our trading platform and learn more about its popular CopyTrader feature that lets you see what Popular Investors are doing.

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