The year is coming to an end, a time when we reflect back over the past 365 days, especially our personal financial situation. Did we save enough money or did we spend more than we earned in the last 12 months? Many millennials, maintained a negative net worth, a dangerous prospect for their future as millions are shackled to the chains of student loan debt, credit card indebtedness and a paucity of well-paying employment opportunities.
As the economy somewhat improves and the labor market gradually recovers, millennials will start to gain some ground on paying back those student loans, accumulating assets and growing their disposable incomes. When millennials have a little bit extra money they may think about how to save or invest it.
Millennials will surf the web and look for great avenues to park their money in. There are a wide variety of savings accounts and investment vehicles that they should take advantage of - high interest savings plans, precious metals and small-cap funds - but there are many other investment hubs that should be avoided for those who want to gain modest returns on their investments.
The global economy remains uncertain and central banks continue to inflation and governments persist in pouring money into the economies without much success. This type of intervention can distort markets and produce vast malinvestment, which creates the business cycle and the booms and busts.
Here are five investments millennials should avoid as we ring in 2015:
1. Guaranteed Investment Certificates (GICs)
In an environment of record-low interest rates, GICs can be a waste of time because they offer very little interest. A lot of the financial institutions offering this product pay between one and six percent over a three-year period - when the inflation rate is around two to three percent then it’s not really worth it.
2. Government Bonds
Similar to GICs, government bonds remain worthless as they often pay pittance thanks to the low interest rate market. What used to be given as a gift to a graduate or newlyweds has now become a forgotten pastime for millions of people. Although some may feel it provides financial security, bonds aren’t worth the effort.
3. Money Market Mutual Funds
Money market mutual funds are popular for those who want to sit on the sidelines during trying economic times and stock market volatility. Again, like the aforementioned, they provide very little returns. Some investors also like the guarantee behind money market mutual funds, but it isn’t as guaranteed as others believe.
Here is what personal finance guru Gail Vaz-Oxlade wrote about the investment hub:
"Since mutual fund prospectuses clearly state that the value of the units of mutual funds will fluctuate, no mutual fund company is under any obligation to make good your loss should the money market fund’s unit value slip below the what we’ve come to think of as the norm. U.S. mutual fund companies have begun to warn customers that if yields on short-term investments remain negative, as they have because of the crisis in the Euro, they won’t be taking the hit for customers. Nope, it’s every man Jack for himself."
4. Bitcoin (or cryptocurrencies in general)
The peer-to-peer decentralized virtual currency bitcoin certainly had a raucous 2014. With bankrupt exchange platforms, imposed regulations by central banks and governments and its price significant plummeting, it has prompted many people to simply scoff at bitcoin and other digital currencies. If you have yet to participate in this market then continue to shun it next year. Although it may be a bright investment in the future, next year it will continue to experience a correction and go through its growing pains.
5. U.S., EurozoneStock Markets
Next year will be the first year in a longtime where the stock market isn’t induced with monthly cheap money stimulus. In other words, the training wheels have been taken off and the punch bowl has been taken away and it’s on its own now. This will be a trying year for stock markets, and serious Wall Street investors are already warning that the term best to describe 2015 trading is "caution."
Many contrarian investors, such as Peter Schiff of Marc Faber, believe markets will collapse again because they won’t receive their monthly injections of quantitative easing, which will generate a recession and the Federal Reserve will launch another edition of QE. Meanwhile, the European Central Bank has introduced its own version of QE in an attempt to revive the economy and markets and create distortions.
So stay away from the U.S. and eurozone stock markets. If you are interested in taking part in the stock market then take a look at emerging markets, energy, Asia-Pacific and small-cap funds.
Indeed, millennials can’t continue avoiding stock markets and maintaining an all-cash portfolio. Sooner or later they’ll have to take a dive into the market. It doesn’t require millennials to put all their eggs in one basket, but rather to go slowly and increase the portfolio’s entrance into the market percentage by percentage.