Millennials are growing up in tough times. Millennials have more college debt and face a tougher job market than the previous generation; many are still living with parents, to save money.
But that doesn’t mean millennials aren’t saving. Perhaps because they’ve seen parents lose money in the stock market crash of 2000 and 2008, many millennials are highly aware of the virtues of putting money aside. But they do it differently – with a lot more technology and a very different investment style.
Millennials are using tech and social media to manage their investments. There’s a wealth of apps out there; Mint, one of the best known, offers a way to aggregate accounts from different banks to get an overall view and manage money across banks and brokers. Acorns, another popular app, rounds up credit card bills to the nearest dollar and then invests the difference – a way of reconciling the YOLO way of life with the need to save for the future.
Crowdfunding and crowdbuying
While older investors worry about whether their money is safe with crowdfunding, millennials are ready to take the plunge. They’re happy to fund craft breweries or new tech companies through crowd equity, just the way they buy stuff through Kickstarter or Massdrop.
Tech friendly and internet native
Value investors like Warren Buffett always steered clear of technology, particularly internet technology, as something they didn’t understand. Millennials grew up with it – they’re happy investing in tech start-ups and computer games companies. Which, when tech is the fastest growing sector in town, is actually pretty smart.
Low costs through smart investing
Millennials are early adopters of ideas like roboadvisors, which invest their money according to algorithms instead of paying a load of highly paid market analysts to come up with ideas. They know they can invest in ETFs which are cheap and reflect moves in the market, instead of buying a fund that charges high management fees. They know that if you keep your costs low, for instance by using a trading site like CMC Markets for their ETFs instead of paying Dad’s full-service broker, you’ll get better performance in the long run.
Investing mistakes millennials are making
While investing in technology may be a good future play, millennials arealso making a few mistakes, too. If you’re a millennial, here are a few things you need to think about.
- Many millennials say they’re risk-averse, but their portfolios are full of start-ups. Asset allocation is something you need to think about – what percentage of your total wealth is tied up in early stage companies or highly valued consumer companies. Could your assets be more broadly based? Could a solid boring fund have a place as ballast in your otherwise high-growth portfolio?
- Many millennials don’t have any investments outside the US. Take a look at using a global or emerging markets fund or ETF to give your portfolio more diversity and grab some of the high growth that’s happening in India, for instance.
- Many millennials are putting money in the bank, but not investing in stocks or funds. Particularly at today’s interest rates, that’s dumb – your money isn’t growing. Once you have enough saved for a rainy day, think about where to get a better return on your funds – invest in equities, directly or through funds or ETFs. The numbers are stunning – over thirty years, equities will give you a third more return than cash in the bank. If you reinvest your income you could expect as much as 9% a year returns.
- Millennials often ignore ‘boring’ but profitable investments, particularly tax shelters like 401(k). Keeping your money away from tax bills will really boost your returns over the long term, even if it is the kind of ‘sensible’ thing your mom is always telling you to do.
Investing for Millennials – Final Thoughts
The best news for you is that you’re just at the right time to make the big decisions. The law of compounding says that your returns will be greater the longer you keep money invested. Get your savings started in your twenties, and you’ll end up with nearly double the savings of someone who starts in their forties. You may be investing a different way – but that law hasn’t changed. Time to get moving!