*This article was originally posted on forbes.com By Neale Godfey, DriveWealth Board of Advisors
Millennials are not investing… and it’s a problem. According to a survey conducted by Bankrate, only 26% of young people under 30-years-old are investing in stocks. That’s compared to 58% of Baby Boomers. With stocks tripling since 2009, why wouldn’t Millennials want to invest?
There are several reasons for the lack of investment by Millennials, but here are the top three:
- No Money– In the recent Bankrate survey cited above, 53% of Millennials responded that lack of money is the major factor for not investing. “Coming out of one of the worst recessions of the last century, where many have had trouble finding gainful employment, it’s understandable that many Americans have had trouble finding money to save and invest,” notedBankrate.
- No Money Smarts – Millennials don’t understand the basics of investing, thus shy away from putting money in the market. We have failed to prepare our offspring for the real world by not giving them the basic educational tools around financial literacy. This is my wheelhouse of expertise. I pioneered the topic of “kids and money” in the 1980’s and created the first resources to teach kids about finances. Many others have joined the fray, but we still need to do more. Our schools are not implementing the basic courses necessary to teach money management and parents don’t have the knowledge to fill in at home. Jean Chatzky noted that, “…surveys reveal that they (Millennials) hardly know the first thing about managing their money.”
- Lack Of Trust– Goldman Sachs conducted a survey of Millennials and found that only “18 percent of the young adults trusted the stock market as ‘the best way to save for the future.’” To dovetail that finding, a Capital One Investing survey released exclusively by CNNMoney cited that, “Ninety-three percent of millennials say that both distrust of markets and lack of investing knowledge make them less confident about investing.” This generation is also “… turned off by the industry’s complex jargon and perceived high fees and lack of transparency.”
Despite the bullish market over the last couple of years, they have stayed away. Just take one Millennials’s stance, Kendall Waldman, documentary photographer and location scout: “I don’t really feel informed enough to invest and the safest bet seems to be paying off my student loans as quickly as possible. I’m sure I could put away a little each month, but I’d want to learn what to do with my money instead of feeling like I’m putting it under my mattress.”
How can we help encourage Millennials to start investing? Here are some tips that will hopefully inspire our next generation to put some money into the market.
Tip #1: Start Investing – The Time To Invest Is Now
Millennials, here is the best advice you can get: “Buy low and sell high.” Okay, I’m being facetious, but we are in the middle of the biggest sell off in years, and it is a perfect time to put a toe-in-the-water and start investing. The sky is not falling. This is a correction, mostly due to China’s economic slowdown and fears over climbing interest rates. The truth is that our economy is really recovering and the U.S. remains strong and sound.
Tip #2: The Miracle Money Can’t Buy – Time
Millennials, you are young and you have time on your side. Even genius,Albert Einstein, is quoted to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.”
“During the 20th century the stock market returned an average of 10.4% a year. Just $1,000 invested in 1900 would be worth over $19.8 million by the end of 1999. At a 15% average return per year, it only takes 30 years to turn $15,000 to $1 million.” I’m not saying that we will average 10% returns, but we may. Millennials, suppose you wanted to start to save now for that new home. The US average sales price for a new home on July 31, 2015 was $361,600. That means that the 20% down payment you would probably need is $72,320. If you invested $160 a week for 7 years and that compounded annually at 7%, according to Bankrate’s calculator, before taxes, you would earn $74,542. The real miracle comes in if you increased the return to 8% and did the same $160 a week, but for 30 years, that’s where you approach the $1,000,000 mark.
Tip #3: Buy What You Know
You know what clothes and shoes you wear, you know what electronics you use, you know what you eat, and you know what media you watch and follow. Those should be your picks for investing. This is not a new philosophy. Peter Lynch professed this and it helped to guide Fidelity’s Magellan Fund from 1977 to 1990, during which time the Funds’ assets grew from $20 million to $14 billion. More recently, investment great,Chuck Carnevale basically professes the same philosophy. I suggest that parents, when they first introduce their young children to the world of investing, take their kids on a walk through the grocery store and start to talk about the products they buy and why.
Millennials, just take a stroll through the grocery store of your life and you can figure out your own portfolio. The key is to buy and hold your stock regardless of what news you hear in the media and what “great advice” your roommate gives you about a “hot tip.” Stay your course, make weekly investing a habit and you should do fine.
Tip #4: Make It Simple
The Goldman Sachs survey further revealed that, “About 43 percent of the survey participants said they wouldn’t spend more than an hour getting guidance on an investment, while 13 percent of them said they wouldn’t seek out advice at all.” According to Capital One Investing, in theCNNMoney report, “… young investors are more likely to go it alone when it comes to investing. Eighty-seven percent of millennials say they trust themselves to make investing decisions on their own compared with 68% of seniors.”
You are the mobile generation and there are online and mobile investing platforms that are easy to use and low cost. I work with a company calledDriveWealth. They are a broker-dealer who gives low cost access and education to Millennials, who want to get started investing in the stock market. You get to make your own investment decisions.
Tip #5: Stop The Excuses and Start Investing Now
The Great Recession may have turned your world upside-down, but all of us, no matter our age, have experienced the best and worst of economic times. And, with the news getting better and better each day, and historical stock market trends showing great returns over the long haul, why not take advantage of today’s opportunity in the market. I may not be around when you retire, but you can thank me when you’re on a beach somewhere enjoying your “Advanced Golden Years.”
Millennials, sometimes all we need is a kick in the assets to get going… so let’s go!