3 Investing Tips for Millennials
An April survey from Bankrate.com found that just 26% of Americans under 30 are invested in the stock market.
Heavy student debt is one obvious reason, but there are other factors, as well.
The financial crises of the last decade have given millennials the impression that Wall Street isn’t exactly honest and that investing is best left to the pros. That could explain why a whopping 40% of millennials’ money is in cash equivalents.
Unfortunately, cash equivalents won’t grow enough to fund their future needs. In fact, money invested in cash equivalents probably won’t even keep pace with inflation, let alone provide funds for important goals like a child’s education or retirement.
Yet it doesn’t have to be that way. Despite the perception among some millennials that investing is too complex, it’s really not. To prove my point, I’ve compiled some basic investing tips for millennials. Please bear in mind that I’m no longer licensed to give advice, per se. These are merely my thoughts based on my decades of experience in the investment arena.
Tip #1: Your Biggest Advantage Is Your Age
That’s right – your age is undoubtedly your biggest advantage. With so much time left in your working years, bull and bear markets really shouldn’t factor in to your decision to invest.
Invest as soon as you have steady income. In other words, pay yourself as well as your bills.
Investing legend John Templeton was once asked when someone should invest in stocks. He replied, “The best time to invest is when you have money.”
He wasn’t trying to be funny, either. Consider this interesting factoid from The Center for Retirement Research: Someone who starts saving at age 45 will have to put away three times as much as a 25 year old in order to retire at age 65.
Keep in mind that, historically, bull markets tend to last longer and move more in percentage terms than bear markets. Just look at the market since 1985. The S&P 500 Index is up over 2,000% with dividends reinvested. Even adjusted for inflation, it’s up about 1,000%.
However, patience is required. In this age of instant gratification, investing requires a different mentality altogether. Slow and steady wins the investing race.
Tip #2: Don’t Trust Everything to Tech Autopilot
Your generation was brought up in a technological age, but that doesn’t mean that everything tech is great. That includes the latest investing trend, robo-advisors. Robo-advisors ask you a few quick questions and, based on your profile, build a model portfolio that supposedly suits your needs.
Here’s the problem with that: You can’t invest using a cookie-cutter approach!
Each individual is unique. Each person has different goals, differing risk profiles, etc. You actually need to talk a human being and get a plan put into place that fits you and no one else!
I know it may be shocking to some millennials, but not all of Wall Street is dishonest. There are actual advisors (some are even millennials) who understand your situation and cater to your age group specifically. Translation: You don’t have to be wealthy to have an advisor. Nor do you have to use your parents’ advisor.
I leave it to no less than the great Yogi Berra to describe what will happen to you without a solid, personalized investment plan: “If you don’t know where you’re going, you might end up some place else.” I’m sure Yogi was thinking of a less desirable place financially, no doubt.
Tip #3: Don’t Put All of Your Eggs in the Tech Basket
If you want to manage your own investments, that’s great. But avoid the trap that many millennial investors are making. They tend to invest in the things they know best, and that often means technology.
Its fine to own Apple or other blue-chip tech stocks, but no one really knows what the future has in store. Back in 1977, well-known tech entrepreneur Ken Olsen said, “There is no reason for any individual to have a computer in his home.”
Anyone listening to him really missed the boat. And don’t forget that Apple nearly went belly-up in computers before achieving huge success with smartphones.
Additionally, investing in one sector alone rarely turns out well. Think back to the dot-com bubble at the turn of the century. Or just Google the “tronics” mania, the 1960s version of the dot-com bubble. It was the dawn of the Space Age, and everything in electronics and avionics was thought to have unlimited potential. As it turned out, some things didn’t.
That’s why, over a long-term horizon, you need to diversify into other sectors and countries. Nearly two-thirds of the world’s stock market capitalization lies outside the United States. Don’t ignore the rest of the world in this age of globalization.
The Bottom Line
Investing is just one part of the entire personal finance package. Having an emergency fund is crucial, too. So is having insurance.
But long-term financial success – like everyone’s goal of a cushy retirement – will largely depend on how well you invest your money. Leaving your money idling at near zero percent in a savings account won’t lead to success. You work hard for your money, let it work hard for you in return.
Investing isn’t a difficult “game” to master, especially if you get started as soon as possible and let your youth do most of the heavy lifting for you.
P.S. If you’re a millennial reader, we’d love to hear from you. Are you invested in the market? If not, why have you avoided it to this point? Finally, do you find this sort of article useful? We always appreciate your feedback.