Every time someone asks me about Millennials and investing, I always say the same thing, “No group is in a better position to prosper.” That’s because young people have the most valuable commodity in the world of investing: time.
This is not a profound revelation. But I think few people truly grasp the extraordinary difference between a 20-year investment timeline and a 40-year timeline. Many of us don’t fully understand how compounding works. And we have a difficult time prioritizing decisions that will pay off in the long-run.
This is a serious problem because smart investment is critical for long-term retirement security. Unfortunately, recent research shows that roughly 80 percent of Millennials don’t invest–and a perceived lack of knowledge about markets and investment strategies is one of the key reasons why.
Some young people simply don’t see themselves as investors because they have a preconceived notion of who an investor is. That is, often someone older and wealthier. But this is misguided.
The truth is, anyone can invest and should. I want to help you overcome these challenges and set you on the path to financial independence.
Here is a simple illustration of just how important it is to start investing early. If you are 25-years-old and start investing $200 per month at a very reasonable seven percent annual return, you will have $480,000 saved for retirement in 40 years. This is a great long-term return in exchange for investing just a little over $50 per week.
But most people, however, fail to get started at 25. And this can have serious financial implications. For example, if you invest that same $200 per month over 20 years instead of 40, you would only have $98,000. By investing at 25 rather than 45, you stand to collect nearly five times as much money.
The Right Investments
Once you have decided to start investing, it is time to determine what form that investment will take. If you have access to a 401k retirement plan at work, it’s important to maximize your employer match. Failing to meet the employer match is one of the costliest mistakes young investors make since this is essentially free money. If you don’t have access to a 401k, you can still receive some of the same tax advantages by opening an Individual Retirement Account (IRA).
Once you have your retirement accounts in place, you may consider making additional investments in the market with the help of a broker or advisor. When constructing an investment portfolio, younger investors should lean toward investing in stocks for growth rather than bonds for security, then adjust their asset allocation more conservatively as they grow older.
Millennials may not be currently investing in great numbers, but they still have the luxury of time. By taking small, measurable steps, Millennials can be on the path to financial independence. And there’s no time like the present to start investing in your future.