Investing for Millennials: Tips for Spending and Saving
There’s no denying that we’re living in an age of instant gratification. We’re constantly told to “live in the moment” without a thought of tomorrow.
The problem is, tomorrow always comes, and we’re increasingly less prepared for it.
Retirement savings, for instance, are falling by the wayside. While we all imagine our golden years to be just that, golden, this requires long-term planning and foresight.
Yet in a recent survey, it looks like many millennials from ages 18 to 34 think they will be, as in the classic Rod Stewart song, “Forever Young.” They simply aren’t putting money aside for their later years.
Why Aren’t Millennials Saving?
Google recently conducted a revealing survey for GoBankingRates.
It found that 42.2% of millennials had saved a grand total of zero for retirement.
Another 29.8% had less than $10,000 stashed away.
The excuses for this are pretty typical. The most popular of these, according to a Schwab survey, is that 44% of millennials don’t want to sacrifice their current quality of life.
My concern for this percentage of millennials without any retirement savings is this: What about quality of life in old age? Where do they expect to be living? Under a bridge?
Other common excuses include saving to buy a home or a car, paying back student loans, or a simple lack of money.
To me, that last defense is pretty lame. I’m a believer in the “latte theory” – if you skip the fancy coffee at Starbucks every day (or other pricey non-necessities) and put that money aside for investment or into a retirement account, those few dollars here and there add up. An extra $100 set aside each month for retirement can make a tremendous difference. More on that later.
Another justification is a fear and/or lack of knowledge regarding the stock market. Fortunately, millennials have the world at their fingertips, and with a lot help from Wall Street Daily and I, you can make the most of the evolving opportunities for profit.
Tips on Getting in the Game
A survey last year by Goldman Sachs found that 43% of millennials weren’t interesting in spending more than an hour, in total, getting investment advice.
Tip #1 is very straightforward: Millennials, start saving now.
At a young age, time is the greatest asset. Money invested in your 20s and even your 30s will only gain interest so that, when it comes time to retire, your funds have grown.
If you procrastinate and put off saving and investing until you’re 40, you’ll have to save three to four times as much to have the same-sized nest egg at age 65.
Let’s look at that $100 a month we talked about earlier. Starting at age 25, even at only 6% annually – below the stock market’s long-term average – that $100 per month will have grown to more than $185,000 by the time you’re 65.
Plug in your own numbers here to calculate what your savings could amount to!
The old adage that “time is money” is true, Millennials!
This leads me to Tip #2: If you’re willing to spend time planning a lunch date, planning a night out, or your next vacation, why not take some time and plan for your future?
Spend at least an hour per month on investments. Even if it seems like a challenge to set aside significant funds at the moment, do some planning, set goals, and know your finances.
By researching the best places to put your money, setting aside the necessary funds, finally investing, and then tracking the progress of your investments, you’ll feel far more involved and devoted to the process.
Beyond research on websites like Wall Street Daily, it’s always beneficial to use social media – see what other Millennials are doing, and share your strategies with friends.
Tip #3 is this: You must save regularly.
It’s not enough to merely save a little now or only plan for the future. You have to keep up with your investments in the interim, as well.
The easiest way to do this is through your employer’s 401(k) plan. This combines tax benefits, compound interest, and usually an employer match. Do not turn down free money from your employer.
If your employer doesn’t offer a 401(k), set up a regular or a Roth IRA. You can set up monthly automatic investment plans through brokerage and mutual funds firms for IRA accounts. Many millennials find it easy to do this straight through their primary bank.
Where to Invest
When it comes time to invest, most Millennials find it hard to decide on a key factor: Where?
During the two decades in which I was a professional financial advisor, I urged diversification. It’s crucial not to put all your eggs in one basket, be it in a tech stock or a U.S. index fund.
Make sure you have exposure to all sectors of the market. That means including consumer staples, consumer discretionary stocks, and pharma, as well as popular technology stocks.
This also means including stocks in both the developed world (Europe and Japan) as well as the emerging and frontier markets. Some exposure to bonds and precious metals also makes sense.
All of these sectors can easily be accessed through exchange traded funds (ETFs) or mutual funds.
The key to all of this, however, is to starting thinking about the finances of your future today. There’s literally no better time than now. Late is better than never.