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Millennials, which form a third of the U.S. population, face a number of financial challenges. Higher taxes and healthcare costs, student loans and mounting credit card debts are currently taking a toll on their savings.
As a result, millennials are focusing on investing in less-risky assets such as bonds and cash. But, it is advisable that they shouldn’t completely ignore equities as stock investments tend to deliver better returns than cash and bonds over the long run.
Millennial Investing Trends
According to UBS, millennials held almost double the amount of cash in their investment portfolio compared with any other generation. This inclination for investments in cash and bonds indicate their lower risk tolerance.
But lower risk-laden investments are insufficient to clear off the huge amount of debt millennials need to pay. Bond and cash investments don’t add much value in the long-run because of low interest rates and rise in inflation.
The majority of millennials are currently burdened by credit card debts and student loans. In the first quarter alone, credit card delinquencies of 90 days or more exceeded 8% of balances among Americans aged 18 to 29, indicating an 8-year high.
Also, about 43% adult Americans carry a federal student loan at present and owe $1.5 trillion in federal student loan debt. They also owe an estimated $119 billion in student loans from private sources that are not government-backed, a Center for American Progress report cited.
Why Millennials Should Invest in Equity Funds Instead
Since millennials are young (aged 18-37), they can stay invested for a long time. And long-term investments eventually generate higher returns.
Thus, investing in equity mutual funds is one of the best long-term bets that will generate higher returns than bonds and cash. Although stocks are riskier than bonds, one can decrease the risk by investing across a diverse range of companies and industries to benefit from the potential of a rising stock price.
A diversified portfolio of common stocks also builds wealth over a long period of time, which suits millennials. Cash investments can be subject to increasing inflation but diversified stock market investments can compound over time, thus assuring higher returns.
Now we come to the second-most vital question: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Choices
We have, thus, selected four mutual funds that have low expense ratios and allocate most of their assets in equity market investments. All the funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three- and five-year returns. Additionally, the minimum initial investment is less than $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Buffalo Large Cap Fund (BUFEX - Free Report) aims for long-term capital appreciation. The fund invests more than 80% of its assets in equity securities. These mostly include common stocks, preferred stocks, convertible securities, warrants and rights of large capitalization companies. The fund may also invest a minority of its assets in sponsored or unsponsored ADRs and securities of foreign companies that are traded on U.S. stock exchanges.
This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
BUFEXhas an annual expense ratio of 0.94%, which is below the category average of 1.07%. It has three- and five-year returns of 13.8% and 12.3%, respectively.The fund has no minimum initial investment of $2500.
Hartford Core Equity Fund Class A (HAIAX - Free Report) invests the majority of its assets in common stocks and aims for capital appreciation. The fund aims to diversify its portfolio by company and industry, however, the fund advisor tends to focus on large capitalization companies that have market capitalizations similar to those of included in the S&P 500 Index.
This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
HAIAXhas an annual expense ratio of 0.75%, which is below the category average of 0.94%. It has three- and five-year returns of 11.6% and 10.7%, respectively.The fund has a minimum initial investment of $2000.
Putnam Small Cap Growth Fund Class Y (PSYGX - Free Report) aims for capital growth. The fund mostly invests in common stocks of small American companies while focusing on growth stocks. The fund invests most of its assets in companies of a size similar to those in the Russell 2000 Growth Index.
This Zacks sector – Small Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PSYGXhas an annual expense ratio of 0.77%, which is below the category average of 1.18%. It has three- and five-year returns of 17.2% and 10.1%, respectively.The fund has no minimum initial investment.
VY T. Rowe Price Diversified Mid Cap Growth Portfolio Class I (IAXIX - Free Report) aims for long-term capital growth. The fund invests most of its assets in the equity securities of companies with a market capitalization within the range of companies in the Russell Midcap Growth Index or the S&P MidCap 400 Index at the time of purchase.
This Zacks sector – Mid Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
IAXIXhas an annual expense ratio of 0.91%, which is below the category average of 0.95%. It has three- and five-year returns of 14.7% and 11.7% respectively.The fund has no minimum initial investment.
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4 Top Mutual Funds for Millennial Investors
Millennials, which form a third of the U.S. population, face a number of financial challenges. Higher taxes and healthcare costs, student loans and mounting credit card debts are currently taking a toll on their savings.
As a result, millennials are focusing on investing in less-risky assets such as bonds and cash. But, it is advisable that they shouldn’t completely ignore equities as stock investments tend to deliver better returns than cash and bonds over the long run.
Millennial Investing Trends
According to UBS, millennials held almost double the amount of cash in their investment portfolio compared with any other generation. This inclination for investments in cash and bonds indicate their lower risk tolerance.
But lower risk-laden investments are insufficient to clear off the huge amount of debt millennials need to pay. Bond and cash investments don’t add much value in the long-run because of low interest rates and rise in inflation.
The majority of millennials are currently burdened by credit card debts and student loans. In the first quarter alone, credit card delinquencies of 90 days or more exceeded 8% of balances among Americans aged 18 to 29, indicating an 8-year high.
Also, about 43% adult Americans carry a federal student loan at present and owe $1.5 trillion in federal student loan debt. They also owe an estimated $119 billion in student loans from private sources that are not government-backed, a Center for American Progress report cited.
Why Millennials Should Invest in Equity Funds Instead
Since millennials are young (aged 18-37), they can stay invested for a long time. And long-term investments eventually generate higher returns.
Thus, investing in equity mutual funds is one of the best long-term bets that will generate higher returns than bonds and cash. Although stocks are riskier than bonds, one can decrease the risk by investing across a diverse range of companies and industries to benefit from the potential of a rising stock price.
A diversified portfolio of common stocks also builds wealth over a long period of time, which suits millennials. Cash investments can be subject to increasing inflation but diversified stock market investments can compound over time, thus assuring higher returns.
Now we come to the second-most vital question: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Our Choices
We have, thus, selected four mutual funds that have low expense ratios and allocate most of their assets in equity market investments. All the funds carry a Zacks Mutual Fund Rank #1 (Strong Buy). Moreover, these funds have encouraging three- and five-year returns. Additionally, the minimum initial investment is less than $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but also on the likely future success of the fund.
Buffalo Large Cap Fund (BUFEX - Free Report) aims for long-term capital appreciation. The fund invests more than 80% of its assets in equity securities. These mostly include common stocks, preferred stocks, convertible securities, warrants and rights of large capitalization companies. The fund may also invest a minority of its assets in sponsored or unsponsored ADRs and securities of foreign companies that are traded on U.S. stock exchanges.
This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
BUFEXhas an annual expense ratio of 0.94%, which is below the category average of 1.07%. It has three- and five-year returns of 13.8% and 12.3%, respectively.The fund has no minimum initial investment of $2500.
Hartford Core Equity Fund Class A (HAIAX - Free Report) invests the majority of its assets in common stocks and aims for capital appreciation. The fund aims to diversify its portfolio by company and industry, however, the fund advisor tends to focus on large capitalization companies that have market capitalizations similar to those of included in the S&P 500 Index.
This Zacks sector – Large Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
HAIAXhas an annual expense ratio of 0.75%, which is below the category average of 0.94%. It has three- and five-year returns of 11.6% and 10.7%, respectively.The fund has a minimum initial investment of $2000.
Putnam Small Cap Growth Fund Class Y (PSYGX - Free Report) aims for capital growth. The fund mostly invests in common stocks of small American companies while focusing on growth stocks. The fund invests most of its assets in companies of a size similar to those in the Russell 2000 Growth Index.
This Zacks sector – Small Cap Growth product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
PSYGXhas an annual expense ratio of 0.77%, which is below the category average of 1.18%. It has three- and five-year returns of 17.2% and 10.1%, respectively.The fund has no minimum initial investment.
VY T. Rowe Price Diversified Mid Cap Growth Portfolio Class I (IAXIX - Free Report) aims for long-term capital growth. The fund invests most of its assets in the equity securities of companies with a market capitalization within the range of companies in the Russell Midcap Growth Index or the S&P MidCap 400 Index at the time of purchase.
This Zacks sector – Mid Cap Blend product has a history of positive total returns for more than 10 years. To see how this fund performed compared in its category, and other 1 and 2 Ranked Mutual Funds, please click here.
IAXIXhas an annual expense ratio of 0.91%, which is below the category average of 0.95%. It has three- and five-year returns of 14.7% and 11.7% respectively.The fund has no minimum initial investment.
Want key mutual fund info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing mutual funds, each week. Get it free >>