Understanding the different nuances between generations can give investors great insight into stock market trends. For example, millennials (born between 1981 and 1996) are more likely to be invested in financial, energy, real estate, IT and emerging tech stocks than in any other sector, according to a recent Motley Fool study.
Armed with this information, investors can understand their own biases or those of others that may affect their investment decisions. As millennial investors reach their peak earning years, understanding what motivates them could help rationalize what the markets will do over the next few years.
Here’s What Millennials Own
Of the five sectors mentioned above, they are all equally liked, with sectors held by 31% to 35% of investors. So why are these sectors more favored than others? The same study found that millennials’ highest priority when it comes to investing is “long-term earning potential” and “historical performance.”
Information technology and emerging technologies have had a great decade. They are far from done growing, ticking both boxes for the aspects most important to millennial investors. Companies like Nvidia and Microsoft are prime examples of stocks that have driven the tech sector higher throughout the decade. On the other hand, financials, energy and real estate have not outperformed the broader market over the past decade.
With millennials preferring these underperforming sectors while valuing earning potential and historical precedence, there seems to be a disconnect. However, some recent factors may shed light on this situation.
There is an outlier in the group
While the real estate sector on the stock market has not performed as well over the decade, the housing market has virtually grown over the same period.
The real estate sector is massive, so millennials may not be investing in underperforming segments of the real estate market. Instead, they’re likely using their personal experiences of the rapidly growing real estate market to guide their investment decisions. Millennials may also have noticed an increase in warehouses as they drive along the outskirts of cities that supply the goods they buy online. Many of these warehouses belong to Prologue, a huge warehouse real estate investment trust (REIT). Millennials also experienced the housing crash of 2008, and familiarity with this segment may also have influenced this decision.
Energy may not have had a great decade, but it is having a great 2022. Since November 9, every S&P500 the sector has been declining for a year, except for energy; it is up 60% from the market’s 16% decline. Additionally, many of these companies were significantly undervalued. This holds true because the most common type of stocks held by millennials were value stocks. This year, western oil and Constellation Energy were the top performers on the S&P 500, but the 15 highest-earning stocks on the S&P 500 are also energy stocks.
The finance sector is the last one that does not correspond to any of the previous explanations. Although financials have outperformed the broader market over the past year, the segment is still down 12%. Over longer periods, financials have significantly underperformed the market. Additionally, 60% of millennials own cryptocurrency, which is in direct contrast to financial companies (in fact, more millennials own crypto than stocks).
So what is the lesson to be learned from the financial sector? First, investors may want some balance. The technology can be volatile but offers maximum return. Energy is undervalued; even with his impressive comeback this year, he could still have more room to run. Some real estate sectors have recorded exceptional performances, and the shortage of housing could prolong the performance.
All of these types of investments carry significant risk, but financials are fairly stable businesses. The balance that the financial industry offers millennial investors is probably why so many people own it. Banks love JP Morgan have played this role for investors for many generations, and millennials are no different.
Millennials may have a broad taste for the stock market, but that’s a good sign. Diversification is a smart strategy; millennials seem to have accomplished this with their chosen sectors.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keithen Drury holds positions at Nvidia and Prologis. The Motley Fool holds positions and recommends Constellation Energy Corporation, JPMorgan Chase, Microsoft, Nvidia and Prologis. The Motley Fool has a disclosure policy.
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