Weekly Wrap: Millennials Move Market As Investments Expand And Seniors Face Double Edged Sword
Millennials Making Monster Market
American adults between 30 and 50 years of age will push the stock market to new highs over the next 14 years, according to institutional analyst Tom Lee.
Lee works for Fundstrat, an analytics research firm. The former J. P. Morgan U. S. equities strategist is high on 2022 predicting an 11 percent increase in the S&P 500. However, his long-term forecast is even more eye-popping.
The Young And The Invested
Over the next eight years, Lee sees the S&P 500 doubling its average compound growth rate to 20 percent. That would result in a 19,349 Standard & Poor’s Index by 2029.
“Demographics of the US are turning into a tailwind right now…so we have this 14-year window ahead of us where we have a demographic tailwind…if this plays out we still have a very strong bull market ahead,” Lee told Markets Insider.
Lee bases a large portion of his optimism on demographics.
The number of 30 to 50-year-olds in the United States declined until 2008, according to Lee. That resulted in a market decline. However, the same age group is now set to increase until 2026. In addition, Lee notes, millennials in that age group will not decline until well into the 2030s.
Millennials Catching Up
Millennials have become a greater influence on the economy and the stock market in particular.
For Years, millennials were an economic afterthought. Until 2016, they only owned five percent of all wealth in the United States. However, research by the St. Louis Federal Reserve shows this generation making significant strides.
Millennials entered the stock market in 2021 in a big way. Remember Game Stock?
More than half of the 10 million investment accounts opened in 2020 were with millennial favorite Robinhood. In addition, Charles Schwab gained four million new clients last year. Consequently, over half were under 40.
Democratization Comes To Alt Investments
This decade may well go down in history as the decade of investment democratization.
The confluence of young investors seeking alternatives to traditional investments, the growth of fee-free investment firms like Robinhood, the rise of fractional investing, and the development of new investments such as NFTs have all contributed to more financial opportunities.
One Limit Remains
However, one classification of investors bucking the democratization trend has been the accredited investor. These wealthy individuals have a high net worth (Over $1 million excluding their primary residence) and or high income ($200,000 for individuals or $300,000 for couples).
The Securities and Exchange Commission set these standards for accredited investors as a safeguard against losses that can occur in certain riskier investments. These include hedge funds, private equity, and venture capital.
Nonetheless, the higher risk of such investment also offers potentially higher financial rewards.
Access to hedge funds and the like will probably never be available to the un-rich. Even so, we lesser mortals can still invest like accredited investors.
You can use ETFs and mutual funds to implement investment strategies that ape the alternative investments of accredited investors. In addition, by using funds, you dramatically reduce downside risks.
Some strategies for investing in areas previously only available to accredited investors include:
Some ETFs invest in new companies before they go public. The four best, according to The Balance are:
- Invesco Global Listed Private Equity Portfolio
- Exos SPAC Originated ETF
- iShares Listed Private Equity UCITS ETF
- VanEck BDC Income ETF
These can include anything from metals such as copper and gold; agricultural products such as soybeans; or energy resources such as oil. Investopedia says these are the best bets for commodities.
- Breakwave Dry Bulk Shipping ETF
- iPath Series B Carbon ETN (Exchange Traded Note)
- KraneShares Global Carbon Strategy ETF
Residential property prices may have soared beyond your budget, but you can still invest through a Real Estate Investment Trust (REIT) ETF. Here are the top six of 2021 according to U. S. News and World Report.
- Vanguard Real Estate ETF
- VanEck Vectors Mortgage REIT Income ETF
- iShares U.S. Real Estate ETF
- Global X Data Center REITs & Digital Infrastructure ETF
- Pacer Benchmark Industrial Real Estate SCTR ETF
- Schwab U.S. REIT ETF
Good News And Bad News For Social Security
Congratulations Social Security recipients, this year you will get a 5.9 percent benefit increase. That is the largest hike in 40 years.
However, with more people getting benefits and rising inflation, the increase in benefits adds to pressure on the Social Security Trust Fund. Consequentially, the current fund is projected to run out of money to fully pay beneficiaries between 2032 and 2034.
Depletion Does Not Mean the End
Social Security benefits will not end when the fund is depleted, according to a Congressional Research Service report. However, they will drop. That is because Social Security is funded by the Social Security Trust and payroll taxes. As a result, workers will still be paying into the system when the trust runs out of money.
The average Social Security recipient will see a reduction to about 78 percent of benefits when the trust is depleted. That is if Congress does not come up with a fix beforehand.
Trust Fighting Losing Battle
The Social Security Trust is funded by U. S. Treasuries. Though Treasuries are safe, they generate low returns. For instance, Treasuries have been earning less than two percent for a long time. Conversely, inflation now stands at 6.2 percent.
Further complicating the picture are two conflicting laws on Social Security funding.
The Social Security Act provides that beneficiaries would still be entitled to full benefits if the trust went belly up. However, the Antideficency Act bars the government from paying out more than is available in the fund.
Really, Congress contradicting itself? How could that happen?
Covid Has Little Impact
Social Security has been affected by the pandemic. Many workers have been out of work because of Covid and many have not returned to work over Covid fears. As a result contributions to Social Security from payroll taxes have declined.
However, a quick economic recovery has limited the damage, according to the Bipartisan Policy Center.
“Given last year’s massive labor market disruption and that Social Security beneficiaries are expected to see their largest cost-of-living adjustment since 1983, it’s remarkable that the overall picture remains just about the same,” said Bill Hoagland, BPC senior vice president. “But even if this bout of inflation proves transitory, there clearly remains an urgent need to address the program’s finances.”
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