Millennials and investing
Many millennials aren’t investing. Perhaps, you aren’t investing. In fact, 68% of millennials aged 30 say they don’t own any stock or stock mutual funds according to a Bank Rate’s Money Pulse Survey. One of the reasons for the reluctance according to the survey is your wariness to invest. Millennials, they say, came of age during an extremely difficult time to invest because your cohort spans the years 1980 to 2000. That means the oldest of you was just 28 when the financial crisis hit in 2008 which has made many wary to invest in the markets. That’s a shame because investment returns have been generally good over the past several years. Returns that may have come in handy for the years ahead as a number of headwinds may make it tougher for millennials saving for retirement. Tax reform, depopulation and historically low interest rates are some of the obstacles adding urgency to the need to start investing. Here’s how.
The earlier you start saving, the better the result thanks to the magic of compound growth. Compound growth is a key aspect of investing. With compound growth, you earn interest on the money you save and on the interest that money earns. You earn interest on interest. As long as you don’t withdraw any funds, over time, even a small
amount can add up to big money. Let’s take a look at three compound growth scenarios:
This mechanism is flexible and can be approached from the other direction as well. For example: if you started at age 20, how much would you need to save each year to have $1 million at age 60, assuming a 3% return? Answer: $13,000. So, you see, saving – even a modest amount – can result in substantial savings over time.
It’s important to view investing as a process not a one-time event. By choosing a pre-determined time to invest – weekly, bi-weekly or monthly – you not only take the guesswork out of when to invest but you ‘pay yourself first’ as well. By setting up an automatic investment plan, you also protect yourself against buying too much of any investment when prices are high while ensuring you buy more when prices are low.
Invest for the long term
Traders trade, investors invest. There’s a big difference between the two. Traders may hold stocks for days, hours or even minutes. That’s not investing. And certainly not for the long term. Saving for retirement is perhaps the most oft cited reason for investing and for most of us that means long term.
To find out more about investing access the 24-page Investing 101 handbook (available also in French, Spanish, Chinese and Punjabi). It’s filled with investment definitions, concepts and principles covering everything from diversification to asset allocation.