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Relief from the Covid-19 virus and record low interest rates have boosted the finances of many Americans during the pandemic. This was especially true for millennials, who, on average, have built a large fortune.
Millennials, born between 1981 and 1996, more than doubled, bringing their total net worth to $9.38 trillion in the first quarter of 2022, up from $4.55 trillion two years earlier, according to a MagnifyMoney report.
The report found that the median net worth of millennials – defined as total assets minus total liabilities – also increased twice over the same period, jumping to $127,793 from $62,758.
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However, the report found that average millennial net worth still lags behind the older generations, with GMs and Boomers coming in at $647,619 and $1,021,264, respectively.
Real estate is more than a third of the wealth of the millennium
With home values on the rise over the past two years, it’s no surprise that real estate, including primary homes and other properties, is over a third of millennials’ total assets.
The median US home sales price was $329,000 during the first quarter of 2020, and the number jumped to nearly $429,000 two years later, according to Federal Reserve data.
However, the report found that millennials who have recently purchased homes may have significant debt. Roughly 63% of millennial debt is real estate loans, followed by nearly 36% in consumer credit.
“I would encourage millennials to focus more on their cash flow rather than their net worth at this point in their careers,” said certified financial planner DJ Hunt, chief financial advisor at Moisand Fitzgerald Tamayo in Melbourne, Florida.
He said millennials could “lose financial ground in the long run” if their monthly mortgage payments prevent them from fully funding their retirement accounts.
Of course, the definition of a fully funded retirement account varies by individual, Hunt said.
While older millennials in their early forties should aim for a maximum 401(k) contribution of $20,500 in 2022, younger workers should deposit enough to receive their company match, and strive to make up to 15 % of total income, he said.
Diversification is “the name of the game”
Although 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 Roberg, CFP and CEO of Beyond Your Hammock in Boston.
If most of your wealth is home ownership, it might be wise to focus on building retirement plans or a brokerage account, he said, suggesting 20% to 25% of total income per year for long-term investments.
“For many people, a diversified portfolio is likely to provide higher returns in the long run,” he said.
Apply for a line of credit to buy a home
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If you’re sitting on a fortune in your home, it may be worth applying for a Home Equity Line of Credit, or HELOC, which allows 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 significant equity in your home,” said Ted Haley, CFP President and CEO of Advanced Wealth Management in Portland, Oregon.
HELOCs are usually inexpensive to set up, with lower interest rates than credit cards, and no additional cost until you use them. While higher interest rates may affect how much and when to borrow, it’s still “a good idea” to have one, he said.
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