Why Millennials Need Financial Brokers

Most investors are successful with the help of financial advisors and investment brokers who give them advice and insight on the best options for appreciating young portfolios.

For millennials, financial literacy is a trait that’s not dismissive in this class of individuals; however, the major disparities between this generation and their older and younger counterparts are seen in taking risks.

According to a Forbes analysis of various industry and academic studies, most millennials are exemplary at saving money and maintaining long-term financial stability. However, they fall short when it comes to investments.

"The problem is, some Millennials may be putting their retirement security at risk by shying away from stocks now," Forbes contributor Andrea Coombes wrote in March 2018. "Consider that the S&P 500 averaged a 7.92% return from January 2007 through December 2017, adjusted for inflation and with dividends reinvested — and that time period includes the financial crisis. By comparison, the average annual return for money market bank accounts hasn’t topped 0.3% in the past eight years."

In plain English, despite impacts of the markets and overall appreciation due to a bull market recovery from the so-called "end" of the financial crisis of the late 2000s, investing in aggressive–even semi-aggressive and conservative–holdings is the lead impetus for little-to-no change.

Similarly, members of Generation Z are willing to take on more risks financially to avoid experiencing the economic turmoil their older siblings and parents went through during the 2007-2008 financial decline. This includes Generation Z, according to some think tanks, opting for less decentralized investing options over their millennial brethren. For example, the meteoric rise of cryptocurrencies and digital currency solutions is indicative of this.

"While older millennials might recall some semblance of analog life, this younger cohort practically grew up with smartphones in their hands," commentator Peter Hans wrote for Harvest, a financial discovery marketplace. "Having come of age during the Great Recession, Gen Zs saw their parents get laid off and fight foreclosure, making them more distrustful of legacy financial institutions."

Considering these facts, would-be investors need to keep in mind that approaching investing should be implemented with a granular and managed process.

Due to this, it never hurts to enlist the help of a broker. First off, millennials need to choose between the type of service they wish to be granted via the option of a discounted broker or a full-service broker.

Simply put, discounted brokers–a better option for young investors–offer little to no commissions and usually require no deposits to invest. Full-service brokers, typically through major financial institutions, deal with a variety of investments that would be geared to sustaining long-term growth.

For the sake of simplicity, millennials might prefer sticking with discount brokers for initial investments. The first step in choosing a broker is finding a trustworthy one. Picking from brands like ETrade or Fidelity will allow those new to investing to know that they’re trusting their funds with stable, reliable companies.

From there, millennials also need to keep in mind that trade execution fees are a very real thing. But, brokerage fees are very, very real too.

For those under the age of 30, a limited budget is likely a reality. Investopedia’s Brian Beers believes that, "it comes to investing at this age, looking at the fees that might apply to you is essential to ensuring that you make the most of your investment dollar."

Most fees are appended to trades, which involve commissions. Plus, a broker may require initial deposits and require minimum balances. Keep in mind that withdrawal fees are levied when funds are withdrawn from a brokerage account. All the while, there are tax requirements to comply with, as well.

Online brokers have grown in popularity in recent years and could be an avenue to examine. Mobile applications like Robinhood have allowed casual investors to test their money with partial holdings in blue-chip stocks, major indices, and in the ever-growing popular penny stocks. Other platforms such as Stash, Acorns, and Wealthfront have quickly defined the "robo-advising" space which allows users to invest pennies into a variety of conservative to aggressive mutual funds.