Should millennials invest in what they use?

Millennials are avid consumers of some of today's hottest stocks, so it might make sense for them to take part in the profit - but are they safe bets?

Pira Kumarasamy 15 July, 2019 | 1:17AM

Millennials on smartphones

When it comes to investing, millennials have time on their side. When their portfolios are cultivated with time and care, they will have the opportunity to watch their investments grow over several decades.

Choosing individual stocks can seem like a gamble. Not every stock will become the next Netflix or the next Shopify. When you do your research and choose a variety of stocks in different industries, however, you reduce your risk and put yourself in a position to enjoy growth over the long term.

Invest in what you use

One way to filter through the thousands of stocks on the market is to observe your own spending habits and the types of services that you find beneficial to your lifestyle. These days, everything from ridesharing to online shopping platforms have taken over and made their way into the daily lives of Canadians – particularly millennials, who are more likely to embrace new ways of doing things. Millennials, for instance, account for about 60 per cent of AirBnB users[i]. They make up a large proportion of the Uber user base[ii]. They also care about what they consume, as proven by the fact that one of their top online content searches is natural foods[iii].

Owning shares in companies that you know and trust means that you are committed to them in a way that goes beyond simply using their products or services. You’ve invested in their growth potential, and in turn this can make you feel more empowered not only as an investor, but as a consumer.

Think about this example: Ten years ago when Netflix was an emerging tech company, you might have purchased a subscription for about $10 per month. At the time, a share of the company cost roughly the same price. You’ve since paid roughly $1,200 in monthly subscription fees, and probably lamented at least once or twice about a fee hike. Had you decided to put $1,200 into 120 shares of Netflix at the time, you would have seen your initial investment increase to more than $40,000 – all while binge-watching House of Cards.

That $2 fee hike isn’t looking so bad anymore.

Practice caution

Jason Heath, Certified Financial Planner, Objective Financial Partners Inc. believes that investing in what you use can be a good way for millennials to feel empowered as investors – but should be practiced with caution.

“The most important consideration when you’re investing is diversification,” he says. “You may not have any control over whether Uber or some other investment goes up or down. What you do have control over is building a portfolio where some go up and some go down.”

In order to diversify while still investing in companies that you use, Heath suggests that young investors may choose to commit a portion of their portfolios to these companies while working with a professional or investment firm to invest the rest.

Investing in what you use can be a good way to get started, but it should be done with diligence. Do your research, speak to a professional and make decisions that will benefit you for years to come.

Three stocks to watch         

Amazon (AMZN)

The online retail giant now boasts 440 million global active users and more than 120 million global Prime members. The company shows no signs of slowing down and has continued to evolve with its member base, particularly the younger demographic through its digital content offerings and the recent acquisition of Whole Foods.

Based on emergent sources like advertising and subscription services such as Amazon Music and Kindle Unlimited, Morningstar analysts have raised their fair market estimate to $2,300 per share.

Uber Technologies Inc. (UBER)

There is no denying that ride-sharing has changed the way people travel, and Uber is a market leader. A recent Morningstar analyst report states that at the end of 2018, Uber had 91 million users who used the firm’s ride-sharing or food delivery services at least once a month.

Uber reported mixed results in the first quarter, but net revenue continues to grow driven largely by the continued expansion of Uber Eats. Morningstar analysts estimate a fair value of $58 per share.

Canopy Growth Corp. (WEED)

The legalization of marijuana in Canada had investors clamouring to purchase stocks. Canopy is the first cannabis company in North America to be publicly traded, and it has come a long way since its early days.

With continued growth potential and expansion into the U.S. market, Canopy maintains a strong rating with Morningstar analysts.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Amazon.com Inc1,824.37 USD1.77
Canopy Growth Corp36.01 CAD-3.33
Uber Technologies Inc35.03 USD-0.58

About Author

Pira Kumarasamy

Pira Kumarasamy  Pira Kumarasamy is a financial writer who writes for Morningstar on personal-finance topics, with an emphasis on issues affecting the millennial generation. She holds a bachelor of arts, economics and accounting from Wilfrid Laurier University.