Following the rapid decline this past March of US benchmark indexes such as the S&P 500 and NASDAQ, many Americans returned to the broader markets afterward, assisted by unprecedented stimulus, lower prices and positive investor sentiment. The result: a wide range of shares made spectacular comebacks.
Metrics from various US brokers show that investors across different age groups are increasingly buying stocks and investing.
Below we’ll take a deeper look at Gen X investing alternatives along with two exchange-traded funds (ETFs) which could provide long-term growth opportunities for this group.
Planning For The Golden Years
Those born from 1965 to 1980—who would be between the ages of 40 to 55 in 2020—are typically considered part of Gen X, the group that comes after Baby Boomers and precedes Millennials. In the US, around 60 million residents belong to Gen X.
This cohort is sometimes referred to as the Sandwich Generation, since many Gen Xers find themselves paying for a wide range of expenses for their adult children as well as for aging parents, making saving for retirement a challenge.
While Americans of all ages wonder if their savings will support a comfortable lifestyle in their golden years, for Gen Xers trying to balance priorities, allotting funds for retirement can easily get pushed to the back burner.
Despite the obstacles, regular investing over a long period can enable Gen Xers and most others to retire comfortably.
Assuming an investor is now 45 years old with $50,000 in savings and that person plans to retire at age 65. That individual now decides to invest that $50,000 in several ETFs and make an additional $3,600 in contributions annually at the start of the year. If this person has 20 years during which to invest and receives an annual return of 7%, compounded once a year, at the end of 20 years, the total amount saved will be close to $351,400.
In practical terms, saving $3,600 a year would mean putting aside $300 a month or about $10 a day. And if the amount contributed is increased to $4,800 a year, the total savings over the same period jumps to over $404,000.
Here are two exchange-traded funds Gen X as well as other investors looking for long term gains may consider researching:
1. Vanguard Total Stock Market ETF
- Current Price: $164.44
- 52-week range: $109.49-$172.56
- Dividend Yield: 1.76%
- Expense Ratio: 0.04% per year, or $4 on a $10,000 investment.
The Vanguard Total Stock Market ETF (NYSE:VTI) offers low-cost access to a broad basket of shares under one umbrella.
VTI tracks the performance of the CRSP US Total Market Index. An exchange-traded fund typically follows an index. As one cannot directly invest in an index, an ETF enables market participants to gain exposure to companies in the index.
This ETF holds 3531 stocks covering all sectors across mega, large, small and micro capitalizations in US equity markets. Technology tops the list with a weighting of 26.4%, followed by Financials (16.3%), Consumer Services (14.2%) and Health Care (14.0%).
The fund's top 3 holdings include Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN). The top ten stocks make up close to a fourth of the fund.
Year-to-date, the Vanguard Total Stock Market ETF is down 0.5%. However, that metric excludes the dividend yield of 1.76%. Research shows that investors who purchase dividend stocks and reinvest the dividends to buy more shares are likely to see considerable growth in their savings.
Amid a busy earnings season in the US, many shares are seeing increased volatility. Since broader indices have recovered considerably from the lows in March, there may be some profit-taking around the corner. As such, a decline toward the $150 level or below is likely and could provide investors with a better entry point for VTI.
2. Global X Millennials Thematic ETF
- Current Price: $29.38
- 52-week range: $16.61-$29.47
- Dividend Yield: 0.14%
- Expense Ratio: 0.50% per year, or $50 on a $10,000 investment.
The Global X Millennials Thematic ETF (NASDAQ:MILN), which debuted over four years ago, tracks the Indxx Millennials Thematic Index. Stock selection is based on consumer spending data, technology, and demographics relating to Millennials, or the generation born between 1981 and 2000.
Put another way, MILN may enable Gen Xers to build a youth-oriented portfolio that is tied to Millennials' spending habits and also offers growth in the coming decade. It currently has 82 holdings covering a range of industries such as social media, food, apparel, health and fitness, travel, education, housing, and financial services.
The fund's top three holdings are eBay (NASDAQ:EBAY), Spotify (NYSE:SPOT), and PayPal (NASDAQ:PYPL), making up around 11% of the ETF.
YTD, MILN is up around 13.5%. In case of short-term profit-taking, there may be a decline toward the $25-level or even below. Long-term investors could consider buying the dips in this ETF with exposure to the Millennial theme.
Bottom Line
As always, investors, including Gen Xers, should regard these ETFs as starting points for more research. They may also benefit from talking to their financial advisors.