There's no question the Baby Boom generation born between 1945 and 1964 has enormous financial influence. The spending habits of America's 76 million Baby Boomers will surely help drive the economy and affect investment decisions for many years to come. (For more, see 7 Boomer Jobs That Are Up For Grabs.)

They're not the only generation with clout, though. Generation Y - today's teens and twenty-somethings born in the '80s and '90s - is just as formidable, numbering about 80 million. As the largest generation in U.S. history, Gen-Y is and will continue to be a major force in the economy, especially as they mature, advance in their careers and command more financial resources.

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In time, Generation Y will even move markets like the Baby Boomers, just not in the same way. Gen-Y has its own approach to money and spending, and that should translate to unique investment opportunities we can all profit from. Just as health care stocks are expected to benefit as the Baby Boomers age, certain stocks and sectors should get extra help from Gen-Y because of its purchasing patterns. Knowing about those patterns can help you position your portfolio for profit in the age of Gen-Y.

Sectors Gen-Y May Boost

  • Technology
    As probably the most tech-savvy generation ever, it's easy to imagine Gen-Y always creating strong demand for computers, cell phones, and the latest high-tech fare. That would obviously bode well for the technology sector, which has its share of high-quality companies to invest in. It's one of the riskier sectors, though, so you may want to dampen the risk by owning shares of a diversified tech sector mutual fund or ETF rather than individual tech stocks.

  • Financials
    Gen-Y should be especially good for the financial services sector for a couple reasons. They're more likely than Baby Boomers and other previous generations to want help managing their money and they tend to value the input of professional advisors. So look for especially strong long-term stock performance from banks, investment companies and other financial services firms, which are keenly aware of Gen-Y's tendencies and will go to great lengths to capitalize on them.


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  • Mass Transportation
    Gen-Y has a far different view of transportation than Baby Boomers, who are famous for their love of cars. Gen-Yers, by contrast, rely more on mass transit and car-sharing services to get around. That should create investment opportunities in rental car companies if those companies devote enough resources to providing extensive and reliable car sharing networks, as some are beginning to do. Railway stocks may be more likely to outperform, too, because of Gen-Y's preference for mass transit.

Industries That May Be Shunned

  • Auto Stocks
    Since Gen-Y isn't big into cars, you may want to avoid tilting your portfolio too heavily toward auto stocks going forward. More limited demand from such a large segment of the population won't help those stocks any. Neither will the fact that the biggest generation of car lovers, Baby Boomers, is getting to an age where they won't be buying cars so much anymore. (To learn more, see Analyzing Auto Stocks.)

  • Traditional Media
    Also tread carefully when choosing investments in the music, broadcast and print media industries. The cable and satellite TV business is already feeling the pain of Gen-Y's rejection, and so are other traditional media such as newspapers, magazines and CDs. Gen-Yers often eschew cable and satellite, opting instead to do their video watching on a laptop or cell phone. They get most of their news and music off a computer, too.

The Bottom Line
Of course, only time will tell exactly how Gen-Y makes its mark on the economy and investment markets, but one thing seems clear: It already wields significant financial power and that power is only going to grow. Companies and industries that realize that will be the ones most likely to provide investors with generous returns in the future. (For more, check out Young Investors: What Are You Waiting For?)

For the latest financial news, check out Water Cooler Finance: The Post-Stimulus Slump.

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