Why Millennials Should Be Investing

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by Advice Chaser
by Advice Chaser

Millennials, famously, are much harder up for money than our parents. We often struggle to find full-time, well-paying work; pay down college debt; and find housing we can afford to live in. That hasn’t left much for savings or investments. Two-thirds of millennials have invested nothing for retirement yet.

But failing to invest during your twenties and thirties means losing out on the time value of your money. Money you invest young pays off much more than money you save in your forties and fifties. For this reason, it’s much better to invest now, even if you have to start tiny.

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Why to Invest

Most young adults agree: they don’t want to barely make rent forever. Raises and better jobs are one goal, but you aren’t in complete control of these paths forward. Investment, however, can grow your net worth even if you can’t get a raise at work.

If you have a savings account, but leave the money there, inflation will eventually steal the value of that money from you. While it’s wise to leave a small emergency fund, once it gets above a few months’ expenses, you could be earning significant interest on it somewhere else.

Once you have a larger amount to invest, you can start thinking of other goals beyond emergencies. Are you hoping to buy a house someday? Have kids? Travel? Investment can put these goals much more in your reach than savings alone ever could.

A final reason millennials should invest is to retire someday. Many millennials hope to spend their retirement on passion projects or life dreams, and few want to continue working as hard as they are for life. But many worry Social Security won’t be there for them, or that it won’t cover much of their living expenses. 

Saving for retirement may seem futile when you have only small amounts to save. But by investing the money in a tax-advantaged retirement account, you could earn substantial dividends. For instance, if you start saving $35 per month at 24 years old, you could have a cool million waiting for you at 69. To save that same amount starting at 40, you’d have to save over $500 every month.

Ways to Invest

One popular way to increase net worth in young adulthood has historically been buying a house. Your parents may have bought a house in their twenties and sold it later for much more than they paid. But if you don’t have a large enough savings, or your lifestyle is still mobile, that option might not make sense for you.

Luckily, there are other avenues for millennials to invest. First, you should save for retirement if you possibly can. Because of the tax advantages, your money will grow much more this way than most other methods you could try. If your employer offers a matching program, that’s even more true. Try to save the maximum your employer will match, or you’re leaving money on the table.

For amounts of money you want to be able to access in an emergency, consider a money market fund. This is a fairly low-risk investment which can be easily liquidated if you need the money. It also pays dividends which you can reinvest.

Higher-risk investments, such as individual stocks or cryptocurrency, should always be a very small portion of your portfolio, if you use them at all. While you may know someone who  has made a substantial sum trading stocks or Bitcoin, these investments can be volatile. Can you really afford to lose all your savings at once? Leave those investments for a time when you have a larger portfolio that can tolerate the increased risk.

What About Debt?

The one thing holding many millennials back from investing is debt. Why bother skipping a latte to put $5 into an investment account when you owe $50,000 in student loans? If you do have a little money, which should you prioritize?

The answer is usually to prioritize the debt. Paying down debt grows your net worth just as investments do. It also can improve your credit score and make it easier for you to pay for important dreams later.

However, if you have debt at a low interest rate and an opportunity to invest at a higher interest rate, it might be worth it. For instance, if you have a mortgage at 5% interest and can invest at 10%, you could choose to pay minimums on the mortgage and put the rest of your available cash into the investment. More often, though, debts have higher interest rates which make them more beneficial to pay off first.

Investing Advice for Millennials

When you’re ready to start investing, seek out an advisor with experience assisting young people. They’ll be able to help you choose the risk tolerance and investment types that work best for your situation. Contact us to find the right financial advisor for you.

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