When someone mentions Millennials, we often think of spoiled kids who have no idea what the “real world” is like. While that’s the stereotype of Millennials, the reality is the rising generation has a lot to teach the rest of us about investing. Before you write off Millennials, here are four things they might be able to teach you about investing.
1. Invest with Care
“Millennials are much more cautious about investing their money,” says Carey Ransom, the CMO of Payoff, Inc. This doesn’t mean you shouldn’t invest — just the opposite. While it can be scary to invest with an event like the 2008 financial crisis fresh in your mind, it doesn’t mean you have to abandon investing altogether. The caution that Millennials show can teach retirees (and the rest of us) something worth knowing about investing.
“Instead of just blindly participating in a 401(k) or buying index or mutual funds, this group is much more concerned about where to invest,” Ransom continues. Many Millennials are concerned about making the right choices with their investments, including choosing the right asset allocation and making sure they aren’t paying outrageous fees.
Many retirees have become too reliant on high-fee mutual funds and could be losing as much as $155,000 to 401(k) fees. Before you lose any more money to fees, it can make sense to take a leaf from the Millennial investing book and double-check your options to make sure you’re doing what’s best for you.
2. Use More Technology
“Another thing Millennials do is cut down on overhead by being more willing to use the Internet and less reliant on managers behind a desk pitching products,” says Ben Feuer, an educational consultant with Forster-Thomas Inc.
Many retirees rely heavily on expensive money managers that might have conflicts of interest when it comes to recommendations. However, there are plenty of less expensive options available now.
While robo advisors might not be the answer to your money management issues, the reality is that some can help you, especially the hybrid products that are on the rise. It’s no longer a choice between a site like Betterment and a professional money manager. Now, you can get somewhat tailored investment help — including from actual people — when you use hybrid services like Wealthfront, FutureAdvisor 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 a Little More Risk
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.
“One important and very Millennial way to manage money is to try a lot of things and fail rapidly,” says Feuer. This doesn’t mean you want to put your nest egg at risk in an ill-conceived investment that fails, however. Instead, you can learn a little bit from Millennials and make it a point to look for a way to add a little more risk and growth to your portfolio.
“I like to keep about 5 percent of my capital invested in long bets at any time,” says Feuer. “Bitcoin, commodities, individual stocks and foreign investments.”
You can add a little more growth to 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 might be able to give it a little boost.
4. Invest in Yourself
When you think of growing your assets, you might 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. “Millennials seem more interested in investing in themselves than the broader market,” says Ransom.
For Millennials, this investment in self often comes in the form of starting businesses and looking for ways to boost earning power. Investing in yourself might mean something different as a retiree. Some of the ways you can invest in yourself for positive results during retirement include:
- Take 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.
- Start a business. Millennials don’t need to have all the fun. You might be able to 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. While it’s true there are downcycles and things can get somewhat depressing over time, 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.
“There is an optimistic belief that they can personally succeed,” says Ransom. That’s a belief you can have as a retiree as well. “That is neat and inspiring to see.”