When it comes to investing, millennials aren’t known for being a reckless bunch. According to a study published by UBS earlier this year, Americans aged 21 to 36 are the most fiscally conservative generation since the Great Depression. Their better-safe-than-sorry attitude can be chalked up in part to the economic turmoil of the last few years and the unique financial challenges they face.
With the job market more competitive than ever and college grads burdened with astronomical levels of student loan debt, it’s easy to see why millennials may choose to take a less aggressive approach when it comes to managing their savings. If you’re a part of the Generation Y crowd who’s ready to dip your toe into the world of investing, here are a few basic points to keep in mind.
1. Find an Advisor You Trust
If you’ve never delved into the world of stocks, bonds and mutual funds before, it’s easy to feel overwhelmed by the sheer volume of investment choices that are out there. Finding a financial advisor, someone who can offer you unbiased, rational advice on what moves to make, is important for your financial health.
While you may be tempted to look to your parents or their financial advisor for help, it’s a good idea to talk to someone who specializes in advising people who are in your same demographic. At age 25, your investment strategy is likely to look very different from the one you’ll have at 45 and your advisor should know how to tailor their guidance to your specific situation.
2. Start Investing Now
One of the most important financial lessons that millennials have learned from the recent recession is that you can’t afford to put off saving. If you’re not already socking away part of your income on a regular basis, you need to make finding the right investment vehicle a priority. If your employer offers a 401(k) or similar retirement savings plan, that’s a good start.
The number one benefit of investing in your 401(k) is that your contributions are made with pre-tax dollars, which means they reduce your taxable income for the year. This can really come in handy if you normally get hit with a big tax bill. The other advantage is that if your company offers a matching contribution, your money has a chance to grow at an even faster rate. Even if you’re just putting in enough to qualify for the match, it’s still better than investing nothing at all.
3. Don’t Sidestep Risk Altogether
Everything in life involves a certain amount of risk and that’s certainly true when it comes to investing. While millennials tend to prefer safer cash investments like bonds or traditional savings accounts, you’re pretty much guaranteed to get a much lower rate of return. Diversifying your portfolio to include a mix of stocks and mutual funds means you’re going out a little further on the limb but you also have a better chance of seeing significant financial growth.
The Rule of 72 provides a simple way of calculating the period of time necessary for your investments to reach a specific level of return. So if you find yourself afraid of investment risk, use this shortcut to illustrate exactly what doing so could do for you in the long run.
4. Avoid the Autopilot Trap
One of the very worst things you can do for your investment strategy is to just set it and forget it. If you’re not actively managing your assets you’re missing out on opportunities for growth and potentially setting yourself up for failure if a stock or bond you’ve chosen takes a dive. That doesn’t mean you have to read the Wall Street Journal from cover to cover everyday but you should be aware of what’s going on with the market in general and how your individual assets are performing. Plus, as mentioned earlier, your strategy should change as you get closer to retirement.
Investing can be a scary prospect at any age but for millennials who’ve witnessed firsthand how quickly the economy can change, it’s particularly intimidating. If you’re not ready to leap in head first, taking small steps and educating yourself as much as possible can make it easier to go from newbie to seasoned investor.
And remember, you don’t have to go it alone. You can turn to either a robo-advisor or a traditional financial advisor for guidance as you start investing. SmartAsset’s financial advisor matching tool can help you an advisor to work with who meets your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
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