Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances.
Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities.
Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. Amy’s work can be found regularly on the Financial Post and MoneyWise Canada.
When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog Finley, and travel.
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Generation Z has become one of the largest investors over the last few years. Many have started their careers, using the stock market to create more wealth, as growth stocks climbed higher and higher.
But that growth has gone downhill fast over the last few months. Now, we’ve entered market correction territory and could be in for a recession, if a mild one. Even if that doesn’t happen, Gen Z investors should realize there is a lesson to be learned: be prepared with more than just growth stocks.
How to prepare
Let’s look at what Gen Z investors may want to consider in the future. Now is an excellent time to get started, as stocks continue to trade well below fair value. In fact, many strong, blue-chip companies continue to trade in either oversold or value territory. So, you can pick them up with stellar returns.
Since you’re young, you can still have a somewhat riskier portfolio. That’s because you have literally decades to see your wealth grow. A rule of thumb that comes up a lot is assuming you’ll live to 100; take your age away from that 100 to decide how much should be in stocks and how much in bonds.
So, if you’re 25, you would invest 75% in stocks, including exchange-traded funds and the like, and 25% in bonds. Then you can fluctuate that number as you grow older and need to consider your financial future once more — say, when kids come along, you buy a house, or start making more money.
Where passive income fits in
Whether you’re an investor just starting out or a few years from retirement, passive-income stocks should be a part of your portfolio. They can give you cash each quarter and sometimes each month simply for owning a stock.
But Gen Z investors have even more to gain. You can create a passive-income stream you can then use to reinvest in your portfolio. When you’re young, you don’t have a lot of cash on hand. That means you may be missing out on investing opportunities because you simply don’t have any cash flow available.
Passive-income stocks solve that problem. You can use the cash to reinvest, letting it collect until you have a large enough amount to invest. Plus, you can collect it until there’s a dip in the share price that will allow for a quick return on investment. Like right now!
An option to consider
One of the best passive-income stocks on the TSX today, in my opinion, is NorthWest Healthcare Properties REIT (TSX:NWH.UN). The healthcare real estate investment trust (REIT) can provide Gen Z investors with monthly passive income. That income is directly tied to a diversified portfolio of any real estate related to the healthcare business. That includes everything from hospitals and doctors offices, to office space and parking garages.
You therefore also get access to cash flow from an essential service on the TSX today. And we all know that’s necessary in these pandemic times. And likely will be in the future as well. And with a high, stable occupancy rate and growing business, NorthWest is a solid option as a passive-income option at a dividend yield of 6.15%.
Foolish takeaway
Gen Z investors who have $5,000 on hand could start bringing in $307 each year by investing on the TSX today. But let’s say you reinvest that cash again and again as the years go by, adding just $1,000 each year. That alone would turn your portfolio into $30,328.40 in a decade, bringing in $974 in dividends a year, or $81 per month. Keep doing this until you retire, and you could have a portfolio worth $379,448.03! That’s while bringing in $2,250 per year and $188 per month.
Financial advisors suggest saving around 10 times your current salary by the time you reach retirement age. Before you retire, you should aim to reduce your annual expenses as much as possible, including paying off existing debt. This can help stretch your retirement savings for even longer.
Perhaps the oldest way to earn passive income on this list. Invest in property to rent or sell at a profit. Consider different markets and property types for the best investments. Details: Rental properties provide steady monthly income.
Dividends are paid per share of stock, so the more shares you own, the higher your payout. Opportunity: Since the income from the stocks isn't related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.
According to Nasdaq, Gen Z spends more time researching an investment before buying or selling compared to older generations, with 40% spending at least 1 hour but less than a day, 30% spending at least a day but less than a week, and only 3% not researching at all.
One rule of thumb, known as the $1,000 per month rule, could steer you in the right direction for a comfortable retirement. According to the $1,000 per month rule, retirees can receive $1,000 per month if they withdraw 5% annually for every $240,000 they have set aside.
“Retiring on $100,000 is quite a challenge, especially considering the average length of retirement and cost of living,” said Jeff Rose, CFP and founder of Good Financial Cents. “According to data from the Bureau of Labor Statistics, the average yearly expenses for those age 65 and older hover around $50,000.”
Typically, passive income is subject to a taxpayer's usual marginal tax rate, which is based on their tax bracket. But taxpayers whose modified adjusted gross income is above a certain threshold may also be subject to the Net Investment Income Tax (NIIT).
But you could also purchase a property, renovate and resell it. Or if you're looking to invest $100,000 for passive income, you might buy real estate and rent it out. While rental income is considered passive income, being a landlord often requires considerable work, which can make it feel like a more active endeavor.
Long-term investors who build up a portfolio of dividend-paying stocks or funds have one of the best ways to earn passive income. Investing in dividend-paying stocks is a passive income idea with both cash flow and capital growth potential.
The bottom 80% of U.S. households receive more than 93% of their adjusted gross income from wages and retirement income, according to a Brookings Institution analysis of the latest IRS data. By comparison, the top 0.1% of households get less than 25% of their earnings from wages or retirement income.
American Gen Zers, the oldest now entering their late 20s, have already accumulated substantial wealth through inheritance, investments, and entrepreneurship. Cerulli Associates estimates a seismic USD 84 trillion will transfer from baby boomer wealth in the USA to heirs, with Gen Z front and center.
Gen Z spending habits show they care the most about fashion, makeup and beauty products, technology, and their pets. This is perhaps due to their young age and few major bills.
Can I retire on 500k plus Social Security? As we have established, retiring on $500k is entirely feasible. With the addition of Social Security benefits, this becomes even more of a possibility. In retirement, Social Security benefits can provide an additional $1,900 per month, on average.
According to EBRI estimates based on the latest Federal Reserve Survey of Consumer Finances, 3.2% of retirees have over $1 million in their retirement accounts, while just 0.1% have $5 million or more.
Retiring with $500,000 could sustain you for about 30 years if you follow the 4% withdrawal rule, which allows you to use approximately $20,000 per year. However, retiring at a younger age will likely reduce the amount you receive from Social Security benefits.
Retiring at 65 with $1 million is entirely possible. Suppose you need your retirement savings to last for 15 years. Using this figure, your $1 million would provide you with just over $66,000 annually. Should you need it to last a bit longer, say 25 years, you will have $40,000 a year to play with.
Introduction: My name is Barbera Armstrong, I am a lovely, delightful, cooperative, funny, enchanting, vivacious, tender person who loves writing and wants to share my knowledge and understanding with you.
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