Millennials: The New Financial Frontier

Listen up, millennials! You’ve had it tough. The Great Recession, the student loan crisis, and now the pandemic. It’s enough to make anyone think twice about investing. But let me tell you something: NOT INVESTING IS THE WORST THING YOU CAN DO! You need to start thinking about your future, and that means putting your money to work. Let’s dive into why investing is crucial for your long-term financial goals and how you can get started.

Why Millennials Need to Invest Now!

First things first: YOU NEED TO START INVESTING NOW! The worst thing you can do in your mid-20s to mid-30s is not save money and invest. If you invest money early on, it gives your money a long time to grow. The stock market might go up and down, but it rarely stays down for a long period. Stock investments deliver bigger returns over cash and bonds in the long run. Money sitting in savings accounts is stagnant and subject to rising inflation, whereas stock market investments can compound over the years. More specifically, large capitalization stocks returned roughly 10 percent compounded annually from 1926-2020. Over that same time period, long-term government bonds returned only about 5.5 percent annually and T-bills returned around 3.3 percent annually.

The Magic of Compounding!

Let me tell you about the magic of compounding. When you earn interest on your investments, you also earn interest on that interest. This allows you to build a larger and larger balance over time — even without extra capital investment. For example, if you invested $6,000 per year when you were 25 years old, and earned $100 that year in interest, at 26, you’d earn interest on $6,100, then on $6,300, then on $6,600, and so on. Over the years, you’d have a significantly larger return than if you just deposited that money in a savings account or hid it under the mattress.

Learn the Basics of Managing Your Investments!

Before you dive in, you need to understand a few basics. RISK TOLERANCE is key. You need to know your ability and willingness to handle investment losses, which might be temporary or permanent. The stock market tends to rise over the long term, but it can and has experienced severe declines over shorter time periods. You’ll want to think about whether you have the stomach to stick it out during those periods of decline, or if you might be better off in safer investments.

Asset Allocation!

Next up is ASSET ALLOCATION. You need to determine how much of your portfolio should be allocated toward stocks versus other assets like bonds or real estate. This mix is referred to as your asset allocation and will likely shift from being mostly risky assets early on in your investing life to safer assets as you move into retirement age.

Active vs. Passive Investing!

Another key decision you’ll need to make is whether you want to be a PASSIVE OR ACTIVE INVESTOR. Active investors attempt to beat popular market indexes such as the S&P 500 by investing in companies they think will outperform. Passive investing, sometimes referred to as index investing, seeks to match the performance of the broad indexes and is available to investors at very little cost. This cost savings has generally meant that passive investors have outperformed active investors over long time periods.

Diversification!

Finally, DIVERSIFICATION is crucial. By diversifying, you’re spreading your assets across several different assets, recognizing that some will do well and others will do poorly. Broad diversified portfolios have performed well over time.

Time Horizon!

Knowing your time horizon is a critical step in any financial plan. Identifying key goals, whether it’s saving for retirement or a child’s education, will have a big impact on how you invest. Long-term goals — at least five years away — will typically result in owning long-term assets such as stocks. Short-term goals such as saving for a down payment on a house will be better served by safer investments.

Millennials: The New Financial Frontier!

Millennials, you’ve had it tough, but you’re also the most tech-savvy generation. You’ve seen the ups and downs of the market, and you know the importance of saving and investing. You need to start thinking about your future and how investing can help you achieve your long-term financial goals. Don’t let the fear of the unknown hold you back. Start investing now and watch your money grow!

So, millennials, are you ready to take control of your financial future? START INVESTING NOW! The market is waiting, and so is your future wealth.