Building wealth is a lifelong endeavor, but it can look different at different stages. From Baby Boomers approaching retirement to Generation Z just entering the workforce, each cohort faces unique financial challenges and opportunities that shape the way they think about money.
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Investing is one of the most common ways people grow their money, but each generation tends to have their own style. Some stick to tried-and-true methods, like real estate and retirement accounts, while others dive into technology-driven tools and entrepreneurial ventures. Here’s a closer look at how the four generations currently in the workforce approach investing and what strategies they’re using to build long-term wealth.
Boomers have already done most of their wealth accumulation when they are in or near retirement. This generation was raised by savers (the Silent Generation) and has also benefited from a sharp increase in real estate values. Market volatility also doesn’t affect their statistically high risk tolerance, as they’ve never encountered high-interest debt they couldn’t repay.
Warren Buffett was famous for saying, “The first rule of investing is not to lose money. The second rule of investing is not to forget rule number one.” Boomers, who will be retiring soon if they haven’t already, would do well to heed this sage advice. Having accumulated wealth through savings, appreciation, and inheritance, boomers’ main strategy is to simply hold on to what they have.
According to Nasdaq, the baby boom generation owns half of the country’s total wealth. Much of this will likely be passed on to subsequent generations, but as people live longer and healthcare expenses rise, it’s important to plan for that wealth transfer while possible. Planning for long-term care expenses and creating an estate plan are important considerations for boomers.
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Members of Generation Given that this generation was between 28 and 43 years old at the time, it likely had a significant impact on their attitudes toward wealth creation.
This generation understood what Bernie Madoff and other schemers did, and as a result, they are less likely to work with a financial advisor than any other generation. Between mobile banking and online investing, Generation X is taking control of investing to save money and have more control.
While not an investment strategy in itself, Generation X will likely benefit from inheriting wealth from their boomer parents. Understanding their parents’ wishes and the likely impact of their particular situation regarding inheritance will help members of Generation X know what to expect.
Not only are millennials some of the biggest spenders on non-investments, but they are also behind in terms of wealth accumulation. This is due to several factors, including the Great Recession, which hit early in millennials’ careers and may have given them a slower start, and exorbitant student loan debt. However, when they are 20 to 35 years away from retirement, they can still catch up.
Retirement savings are crucial for this group, and given their time horizon, a “set it and forget it” approach may be warranted. Investing in exchange-traded funds (ETFs) allows you to take advantage of market returns without the risk of picking individual stocks. Fees also tend to be lower than mutual funds, putting more of your money to work for you.
Saving for retirement has never been easier, but that doesn’t mean it’s simple. Millennials would do well to fully understand their workplace retirement plans or what their options are if they are self-employed. Maximize your contributions, if possible, but if you can’t, at least contribute enough for the company to match – that’s free money.
Also, don’t sleep on the Health Savings Account (HSA). You save money before taxes and can then withdraw money tax-free to use on medical expenses. What you don’t use each year will carry over to the next.
The youngest members of Generation Z are just now entering the workforce, while the oldest are in the early years of their careers. This group has the most options when it comes to building wealth and time is on their side.
Generation Z has a more positive view of its ability to obtain generational wealth than the population as a whole, and considers entrepreneurship to be the path to achieve it. More members of Generation Z than the general population believe that starting their own business is the way to be successful enough to support their family for generations to come.
Generation Z is the first generation to grow up with the Internet, so it is not surprising that their investment and wealth generation strategy revolves around technology. According to a 2024 YouGov survey, more than half (52%) of Gen Z respondents agreed that “cryptocurrencies are the future of online financial transactions,” compared to just 13% of boomers.
With the longest time horizon of any active generation, Generation Z will benefit the most from the magic of compound interest. By saving and investing regularly, they can watch their wealth grow over time.
Building wealth requires dedication, perseverance, financial knowledge and the wisdom to know when each is necessary. While each generation may have the strategies it prefers, the common denominator is action. Making active saving and investing a priority will build wealth now and for generations to come.
Caitlyn Moorhead contributed to this article.
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This article originally appeared on GOBankingRates.com: Investment Strategies Every Generation Uses to Build Wealth
