Ah, Millennials… those of us who are not of the generation born between 1981 and 1996 sure like to grumble about them. We often think of them as spoiled kids who have no idea of what the “real world” is like. Of course that’s just a stereotype. And in reality, there are a few things they can teach the rest of us about investing.
First off, it’s important to consider the financial environment in which most Millennials have grown up. Many watched their parents lose on investments during the 2008 crisis. Many are part of the “gig economy,” working freelance for themselves and thus not having employer-sponsored retirement plans. And all of them have come of age alongside internet and mobile technology.
All of these patterns give us some good ideas that we non-Millennials can adopt for our own finances. Here are four lessons we can pick up from the Millennials:
1. Invest With Care
As a whole, Millennials tend to be cautious with how they use their money. A 2015 study by T. Rowe Price revealed that 75% of this generational group say that they track their expenses carefully, versus 64% of Baby Boomers. They’re also more likely to be sticking to a budget.
This thriftiness tends to carry into their investing activities. And they have good reason to be careful — after all, they were coming into adulthood as the markets were crashing in 2008.
The one big thing that Millennials have got going for them when it comes to investing and saving their money is time. They can afford to put their money into long-term savings accounts that use compound interest to slowly build up over time, because they have decades before they need to consider leaving the workforce.
So instead of plunging money into trades, many Millennials are wisely choosing to use interest-paying savings accounts and even microsavings/investment services such as Acorns to grow their wealth over time. And when they do invest, they are cautious to avoid unnecessary and high fees.
Although retirees may not have the same time advantage as their twentysomething counterparts, there’s still much that can be learned here. We here at Investor Junkie can’t stress it enough: Investing is not how you get rich. The aim of investing should be to protect and even steadily grow your assets. It’s not for becoming a millionaire overnight. We will never recommend risky investing moves like day trading. So retirees should follow Millennials’ lead and be cautious when it comes to the markets.
On the other hand, they should also pay attention to fees when they do invest. Many retirees have become too reliant on high-fee mutual funds and could be losing thousands of dollars in the process. Before you lose any more money to fees, it can make sense to take a leaf from the Millennial’s investing book and double-check your options to make sure you’re doing what’s best for you.
You may want to check out an online discount broker such as TD Ameritrade. We recommend this platform because of its more than 100 commission-free ETFs, among other benefits.
2. Use More Technology
Millennials also smartly cut down a lot on overhead by choosing to do more on the internet and becoming less reliant on personal financial advisors. Advisors have gotten a bad rep over the years for pitching products to pad their own paychecks. These personalized services can also cost a ton of money — after all, they’ve got to pay for renting and running an office.
On the other hand, Millennials have been turning to robo advisors, automated investing platforms that use algorithms to pick their ideal asset allocations. While these services aren’t the answer to everyone’s money issues, the reality is that some can really help you.
If you’re coming close to retirement, our top-rated robo advisor, Betterment, has useful tools and calculators to help you determine if you’ve saved enough. And if you’ve already retired, this robo advisor can help manage your retirement income. It’s currently the best platform out there for retirees.
You also don’t need to be leery of depending solely on a robot for managing all of your finances. Like Betterment, there is a whole host of hybrid platforms that bring some human assistance into the equation. Other robo advisors with a human touch include Wealthfront and Personal Capital.
These hybrid services cost less than traditional money managers, allowing you to keep more of your money, and they can also help you figure out the ideal asset allocation as you manage your retirement portfolio. Millennials are willing to use technology as they invest, and retirees can benefit from investment technology as well.
3. Add Alternatives to Your Portfolio
Conventional wisdom about the retirement portfolio suggests putting the bulk of it in bonds and maybe some cash. However, with retirees living longer, longevity risk has become a very real concern. A portfolio composed mostly of bonds may not beat inflation to a degree that allows you to outlive your money.
Millennials in particular are favoring alternative investments such as precious metals (they are the generation with the highest percentage — 11% — of their assets in gold) and even real estate.
This doesn’t mean you should run out and jump on the Bitcoin train. (In fact, we here at Investor Junkie strongly caution against going too gung-ho on cryptocurrencies.) But it does mean that you could look to diversify your portfolio for a little more growth.
Of course these things are not guaranteed to be profitable. But you can manage any extra risk in your portfolio by using the bucket system to help you manage risk and return. By categorizing your money according to how soon you will need it and keeping the money you need soonest in the safest investments and taking risks with your long-term buckets, you can potentially retain some degree of growth in your retirement portfolio.
This can help you stay ahead of inflation and provide you with opportunities to outlive your money. No, you don’t have to take huge risks. But if you can add something alternative to your portfolio, you may be able to give it a little boost.
4. Invest in Yourself
When you think of growing your assets, you may not think of investing in yourself. However, you are your best asset. As you look to the future, make sure you are investing in yourself.
For Millennials, this investment in self often comes in the form of starting businesses and looking for ways to boost their earning power. Investing in yourself may mean something different as a retiree. Some of the ways you can invest in yourself for positive results during retirement include:
- Taking care of your health. You’ll have a better quality of life and you’ll save money on costs.
- Learning new things. Keep your mind active and sharp by learning new things. You can go back to school, pick up a new hobby, or just keep up with technology. You can also make it a point to educate yourself about investing so you can be a more effective manager of your own portfolio.
- Starting a business. Millennials don’t need to have all the fun. You could consult or start a business for extra income, and so you continue to mix in the world. Social ties and purpose can go a long way toward improving your quality of life.
Don’t forget that investing in yourself can also include taking a more optimistic view of things. It’s true there are downcycles and things can get somewhat depressing over time. But it’s also true that markets often recover, and you will likely still have time left to get things right.
Learning from Millennials to invest in yourself and look to the future can help you today — and tomorrow.