Effective Asset Allocation Strategies Key To Wealth Protection And Generation For Millennials

Entrepreneur India | October 22, 2020

The term ‘millennial’ was coined by Neil Howe and William Strauss of the US for defining the generation of persons born between 1981 and 1996. In recent times, the millennial generation has emerged as a powerful economic powerhouse and an aspirational investor community. In the COVID-19 induced lockdown period, millennials were made to stay and work from home. This forced stay has prompted them to reassess their investment portfolio for wealth multiplication through effective asset allocation strategies.

Millennials constitute roughly 440 million of India’s population and has emerged as the strongest working force in the economy. It is estimated that the millennial generation contributes roughly 70 per cent of the total household income in India. Their sheer numbers and rising degree of purchasing power holds the potential to impact the country’s GDP on one hand and influence the profitability of any company operating in India which capitalize on consumer behaviour on the other. The millennial generation holds the key to the future of the country in terms of driving economic outlook and prosperity.

Millennials are well-read, widely travelled, technologically adaptable and social media savvy. They prefer to spend on consumer goods such as clothing, cars, travel and healthcare for leading a comfortable and healthy lifestyle. Economic surveys conducted in India point to the fact that millennials like to save. The rise in their income is directly proportional to the rise in savings which can be upward of 30 per cent, a significant amount.

While formulating asset allocation strategies or a wealth management plan for the millennial investor, simply pushing a financial product may not be enough. The products will need to be customized to take care of their requirements such as education, health, leisure and retirement. This generation of investors like to play a participative role in discussing and deciding their financial future. Therefore, pitching advisory products and fee-based incomes around advisories can be a good idea.

A millennial investor with sound professional qualifications and rising career trajectories will value time and practical advice. Hence a meaningful approach for them to meet their investment and wealth planning and investment needs may be through a multi-family office (MFO) which will charge them an advisory fee.

For an investor class whose size is more than the population of the US, millennial investors in India present a goldmine of professional opportunities for wealth management companies and investment advisory services. As compared to their previous generations, the millennial generation has high disposable incomes for consumption and saving. They should be made to understand that prudent investing starting from their early earning years can play a pivotal role in wealth creation for their retirement years. Advisors should set out strict investment goals for millennials and also lay out a viable roadmap for achieving financial freedom.

The outbreak of unforeseen disasters like the COVID-19 pandemic has demonstrated the need to build a robust investment portfolio which can help sustain through difficult times. With economic volatilities becoming a harsh reality on a global scale, wealth planning and preservation has become a critical goal. Millennials are especially susceptible to the adverse economic impact of the pandemic like an uncertain employment outlook, financial insecurities and prospects of a global recession. To tide over these crises and help them achieve financial stability and growth, seasoned professionals should strategize the allocation of wealth across different asset classes taking into account their long-term investment horizon and risk appetite.

After undertaking careful deliberations of the investment needs and analyzing their profiles, millennials can be guided to park their wealth across different asset classes such as property, gold, direct equity, mutual funds and fixed deposits. A diversified portfolio will not only ensure safety of wealth from future market risks but also help in building a substantial wealth corpus over a period of time. One may also reduce risk substantially by putting certain investments under LRS in a foreign country which can act as a hedge against currency fluctuations. Expert guidance should be sought before making any investment decision.

The preference to view real estate as a viable asset class has undergone a sea-change with millennials preferring rental accommodation unlike previous generations who would invest in buying their own houses.