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Covid-19 relief and historically low interest rates have boosted the finances of many Americans during the pandemic. This has been especially true for millennials, who have built significant wealth on average.
Millennials, born between 1981 and 1996, more than doubled their total net worth, reaching $9.38 trillion in the first quarter of 2022, up from $4.55 trillion two years earlier, according to a MagnifyMoney report.
And the average net worth of millennials — defined as total assets minus total liabilities — also doubled over the same period, from $62,758 to $127,793, according to the report.
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However, the report finds that the average net worth of millennials still lags behind older generations, with Gen Xers and baby boomers averaging $647,619 and $1,021,264, respectively.
Real estate accounts for more than a third of the wealth of millennials
With home values soaring over the past two years, it’s no surprise that real estate, including primary residences and other assets, makes up more than a third of millennials’ total assets.
The median sale price of homes in the United States was $329,000 during the first quarter of 2020, and the number rose to nearly $429,000 two years later, according to Federal Reserve data.
However, millennials who have recently purchased homes may have significant debt, the report says. Nearly 63% of millennial debt is home loans, followed by nearly 36% in consumer credit.
“I would encourage millennials to focus more on their cash flow than their net worth at this point in their careers,” said certified financial planner DJ Hunt, senior financial adviser at Moisand Fitzgerald Tamayo in Melbourne, Florida.
He said millennials could “lose ground financially in the long run” if monthly mortgage payments prevent them from fully funding their retirement accounts.
Of course, the definition of a fully funded retirement account varies among individuals, Hunt said.
While older millennials in their early 40s should aim to max out 401(k) contributions at $20,500 in 2022, younger workers should deposit enough to receive their company’s match, striving to reach up to at 15% of gross income, he said.
Diversification is “the name of the game”
While owning and living in your home serves an important purpose, diversification is “the name of the game,” especially for younger investors who have more time to build assets, said Eric Roberge, CFP and CEO of Beyond Your. Hammock in Boston.
If most of your wealth is in equity, it might be a good idea to focus on building pension plans or a brokerage account, he said, suggesting 20-25% of gross income annual for long-term investments.
“For many people, a diversified portfolio will likely provide higher returns over the long term,” he said.
Apply for a home equity line of credit
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If you’re sitting on the equity in your home, it may be worth applying for a home equity line of credit, or HELOC, allowing you to borrow from a pool of money over time, if needed.
“It’s always a good idea to have a HELOC in place if you have substantial equity in your home,” said Ted Haley, CFP, president and CEO of Advanced Wealth Management in Portland, Oregon.
HELOCs are generally inexpensive to set up, with lower interest rates than credit cards, and there are no additional costs until you use them. While higher interest rates can impact how much and when to borrow, it’s still a “good idea” to have one, he said.