The Coming Wave of the Next Generation

One mega-trend that investors simply can’t afford to ignore is the millennials. It literally doesn’t get more “next generation” than that!

You’ve probably heard plenty about this group, and it might not all have been good. Millennials tend to get a bad rap for being entitled, dependent on their parents and tech-obsessed. But this group is also resourceful, creative and entrepreneurial-minded. After all, these are the people who made blogging into a more lucrative career than banking!

Any investor who dismisses the importance of millennials to the economy and the stock market is crazy. If you’re not convinced, consider this one astounding fact: We are witnessing the beginning of the greatest wealth transfer in U.S. history. The baton is about to be passed from the once-dominant Baby Boomers to their children, which is this emerging millennial generation (generally born between 1980 and 2000). Investors who are shrewd enough to realize the immense potential this demographic shift holds are in an outstanding position to benefit.

I love talking about this trend because everybody stands to benefit. Whether you are a retiring Boomer or a millennial yourself looking to invest for your family’s future, there are so many exciting ways to profit. There are three million more millennials than their post-war parents, with the oldest in their mid-30s and the youngest now in college. They’re getting ready to take the economic spotlight as they flood the workforce, start families and enter their prime earning years.

According to a report by Accenture, spending by millennials in the United States will jump from roughly $600 billion last year to $1.4 trillion by 2020 – less than three years from now. This would represent 30% of total retail sales. Wall Street may not be looking there quite yet, but I’m not waiting and you shouldn’t either!

Multiple Ways to Profit

There is no question that millennials are redefining some things. Think about their reliance on social media and all things mobile. Or their lack of urgency to get a driver’s license. Man, I couldn’t wait to get mine. They also are known to prefer experiences over things. That’s all fine, and there’s money to be made there as the world adjusts – like having a doctor’s appointment via videoconference.

Millennials are also having a major impact on housing, which is a bit more traditional. I know everyone thinks they live in their parents’ basements, but come on. That can only last so long most of the time, and we’re now seeing evidence of this generation’s emerging presence in housing.

About one out of every three homebuyers this year will be a millennial, equating to nearly 2 million homes. Just-released data from the. U.S. Census Bureau shows the homeownership rate among people under age 35 grew the fastest last year, and it won’t stop there. This age group tends to settle down later in life and wait to start families, so the oldest is just now reaching that point. They will account for 80% of all births, which creates more demand not just for homes but for bigger homes as their household needs increase. In fact, the Chairman of the National Association of Home Builders said that this generation is now looking more for single-family homes in the suburbs to raise their families.

There are many ways to make money off of the millennial mega-trend, and housing is just one. Our NexGen approach leads us to multiple opportunities in real estate as well as homebuilders and materials companies.

If you want to go broad, you can look at the iShares Dow Jones US Home Construction ETF (ITB) and PowerShares Dynamic Building & Construction ETF (PKB). They consist primarily of homebuilders but also include building products and even home improvement stores.

I like the homebuilder sector right now. In the short term, better-than-expected earnings and subsiding fears of higher interest rates have fueled some recent momentum. Longer term, the homebuilders are a play on low unemployment, historically depressed interest rates, housing affordability and millennials forming families. I recently recommended the stock of a regional homebuilder that is expected to see earnings grow nearly 80% this year.

A related area is home service companies, and when it comes to millennials, what better way than an online home services company. I’ve recommended one of those as well. It is expected to turn profitable this year, which is often a great time to own a stock, and growth is expected to continue next year with the bottom line projected to jump another 38%.

You can see how many different areas of housing millennials can impact – and all this from a demographic known for not leaving the nest! It may happen a little later in life for them, but the numbers are eye-popping and we’re in the early stages of what could be a serious snowball effect – one you definitely don’t want to miss out on.

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