Young people, you really need to start investing.
Most millennials think income is an important success factor, and four out of five millennials think money can buy happiness. Yet only 26 percent of millennials own stocks or stock-based investments such as mutual funds, according to Bankrate.
A UBS Investor Watch Survey showed that millennials hold twice as much cash as other generations, more than half their assets. Only 28 percent of millennials think long-term investing is important, compared to 52 percent of non-millennials. And according to the same survey, if given additional money, only 12 percent of millennials would invest it.
So what’s the excuse? Ninety-three percent of millennials say they both distrust markets and lack investing knowledge, according to a Capitol One ShareBuilder survey. According to Bankrate, 53 percent say the prime reason is that they don’t have money to spend; 21 percent say they don’t know about stocks.
But these are bad excuses. Today, there are apps – like Acorns – that will allow you to invest even pennies in a portfolio of funds tailored to risk tolerance and type of investment. Even if you just spread all your savings across the S&P 500 and you don’t want to do any other homework, you should still invest. Including the dot-com crash and the financial crisis, if you had invested $10,000 in an S&P 500 index fund 20 years ago, it would be worth more than $67,800 today.
Basically, the single most important factor is starting early. So here are some quick tips:
1. Get rid of debt. You’ll have a lot more money to save if you’re not making interest payments. Pay off credit card debt first (immediately!) and never borrow with your card again. If you’re using a credit card, you should use it for rewards and pay off the balance every month. Only eight percent of millennials currently do that, according to a Facebook report.
Second, find creative ways to work down your school debt. Make additional payments toward your principal and ask your employer or school about loan repayment programs. And always try to avoid taking a loan in the first place.
2. Don’t put off investing in marriage and houses.
Millennials have less money to spend on average than other generations and they’re encumbered with debt. So they tend to push off marriage and home ownership, despite the very real financial incentives of both. UBS found that only 16 percent of millennials would buy real estate if given extra money. Be part of that 16 percent.
A house is the best investment you can make and a great way to learn responsibility, as long as you know what you’re doing. Pick growing markets – even if they’re on the other side of the country – and rent it out if you’re not going to live in it. If you do live in your own place, monthly mortgage payments are often cheaper than rent, but saving for a downpayment can be tough, given stricter rules that followed the Great Recession.
Always try to buy a place that needs work which you can do yourself to avoid the cost of hiring contractors.
Consider real estate investment trusts, pooling resources with family members, or using sweat equity if you can’t afford a place outright.
3. Take financial risks when you’re young
Play the stock market and take chances. Eighty-three percent of millennials are not trying to outperform the market and a significant portion only care about hitting their goals, according to UBS.
Don’t do this. Aim big.
You want to outperform everyone else’s stock portfolios. Focus on the long-term. Ignore short term gains and losses. The average will almost certainly work in your favor by the time you retire.
You have to risk now and be more aggressive in your 20s. If you’re young, even losing 30% of your money in your portfolio in a year is okay. So try smaller companies, tech companies, and investing in foreign markets. Transition into more safe stock, large companies, and perhaps even bonds as you grow older.
4. If you’re lazy, check out apps.
There are many websites and apps that will keep track of stocks for you and offer robo investing solutions (like Betterment, Wealthfront, Marketocracy, SocialPicks, and DriveWealth). Personal Capital is a free investment management app that aggregates all of your investing accounts from multiple brokers.
5. But try to do your homework.
UBS found that only 14 percent of millennials would consult a financial advisor, compared to 40 percent of non-millennials. Four percent of non-millennials seek the advice of their parents compared to a whopping 41 percent of millennials. A sizable portion of millennials also ask their friends.
Sorry, but your parents and friends may not know anything about investing. Do your own homework. You can hire an advisor. Just hire one whose fees are tied to portfolio growth. Make sure to diversify and have a range of investments. And don’t forget to check on the asset allocation in your 401(k).
If you start investing early, you can invest less to earn more. Good luck!