Millennials and Investing: You’re Doing it Wrong

Okay @Millennials: #ListenUp.

If you’re trying to figure out what to do with your finances, odds are…you’re doing it wrong.

In a survey of over a 1,000 millennials, it was found that many of them exhibit a lot of the behaviors that we often tell investors to avoid.

Millennials are the generation between Generation X and Generation Z…and while no precise birth dates are really agreed upon, most people tend to say that millennials are those born between 1980 and 2000.

Before we pessimistically dive into the bad news, here’s what millennials do super well:

They invest earlier

Millennials tend to do it earlier than their parents – or any generation before them. Average investors of the millennial generation reported that they were just 20 years old the first time they invested. In contrast…baby boomers said the corresponding age for them was 27. That’s a big deal. As anyone familiar with compound interest can tell you: time can work wonders for your investments if you let it.

They save…a lot

Millennials understand the fleeting nature of work and money, given that every generation is shaped by the events in which they come of age. For the millennials, that means they’re shaped by the Great Recession. Seeing that kind of wealth destruction and upheaval tends to stick in your mind…and as such, millennials tend to be great savers – putting away up to 15% of their salaries.

Unfortunately, millennials have many bad habits, too…

They’re unpredictable stock-pickers

Young investors tend to be interested in newer, shinier tech companies that are ultimately unproven. Millennials tend to gravitate towards the Googles, Apples and Twitters of the world…rather than investing in broad index funds or even blue-chip companies with a much longer track-record of performance.

Putting your money in a few companies like this increases your risk and isn’t a great strategy if you don’t have a lot of money to invest.

They get scared

Millennials revealed that one of their greatest regrets was selling their investments at the wrong time. More than two-thirds of millennials surveyed also regretted not investing in the stock market as it was recovering following the 2008 recession.

Hindsight is 20/20, of course…but it seems that this pattern of inaction is quite common amongst millennials. A wealth management firm conducted research that suggests young investors are easily deterred by bad returns in the first few years of investing.  Losing a little bit of money in that first year can cause them to lose their nerve and take their money out of the game.

They don’t like free money

This one is a particularly terrible mistake to make. If someone stopped you on the street and handed you a $100 bill…would you take it? Ok, not the best example. You’d probably assume that person was crazy. But the point is: free money is free!

We’re talking about employer matching 401k programs where your company will literally pay you to save money for retirement.

Yeah, it’s that simple and it’s that amazing.

Here’s how it works: typically, you’d agree to set aside a percentage of your pay that goes straight into your 401k. As an incentive, your employer will match that percentage (maybe not 100% but to a certain point). So if I make $50,000 a year and agree to save 10% ($5,000/yr.) under a 50% matching program that means my company will give me $2,500.

That’s $2,500 without having done anything other than filling out a form!

The terrible reality, however, is that millennials don’t even bother filling out the form! Whether it’s because retirement seems so far away, or they aren’t sure they’ll stay with the firm, it seems incredible that someone wouldn’t take advantage of a program as generous as a 401k matching program. It just works us up!

They think they can time the market

Ok – we can see why market timing has its appeal. If you can just get in at the right time, you could ride the stock market all the way to the top. Once you’re there, cash out that huge score and you’re set, right?

Wrong. No one can time the market, and if they tell you they can…they’re a liar. So why is it that a third of millennials agreed with the statement that “market timing is everything” (way more than any other generation)?

Investors actually tend to be their own greatest enemies – selling at times of panic and then missing out on the potential gains to be had immediately after. They try to time the market based on “sell” or “buy” signals which really just end up being people’s feelings on whether the market is going up or down and rarely on fundamental analysis.

While market timing sounds great in theory, in practice it’s incredibly hard to achieve. It’s also probably impossible for someone who’s just starting to learn about the ways of the stock market. Furthermore, if you’re trying to time the market…it just means you’re making more trades than if you just adopted a buy-and-hold strategy. If you’re making more trades, it means you incur more trading costs – which eat into your profits! Why do that to yourself?

So…what should you do?

If you’re a millennial reading this – here’s what you can do. Take that money you’ve saved up and invest it into a broad index fund like the S&P500…and keep it there forever. Don’t look at it. Don’t touch it. Just…let it be. In the meantime make educating yourself in the matters of finance and investing a lifelong goal. Start here.

And if you haven’t signed up for your company’s 401k matching program yet…what are you waiting for?


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