Millennials have it rough. The generation before them calls them lazy and entitled while asking for help using their smartphones. They have the generation after them taking advantage of technology like never before.
Their lives are more expensive than those of prior generations, and they may have to plan for a longer retirement with less job security to save for it.
There are no perfect answers to accomplishing your goals, but there are many positives to consider as well. Here are some tips to consider to avoid the major pitfalls on your road to investing success.
Not Diversifying
There are a wide variety of investment options these days – kudos to the growth of global capitalism. You can now allocate your hard-earned money to tens of thousands of mutual funds or ETFs, which give you exposure to U.S. stocks, international stocks, emerging markets, specific industries, leveraged positions, hedge funds, real estate, commodities, currencies, and government and corporate bonds from all over the world.
This doesn’t imply that any of these asset classes are inherently better than another or should always be part of your portfolio, but the days of buying an S&P 500 fund and calling it a day are probably over.
Not Taking Enough Risk
Some people aren’t born investors. They don’t feel comfortable with money fluctuating a great deal. The stock market isn’t for everybody. What’s important is knowing there are options that still allow the potential to grow your money.
However, these options may require a little more diligence and research to find. That is where trusted friends, coworkers, family, banks, accountants, and financial planners come in. Learn what’s available, ask questions, and see what works for you. Millennials are still decades away from retirement and might be looking at decades while they are there. Growing your money through compounding will help.
Not Understanding Your Investments
Similar to those striving to feel comfortable in their investments and the amount of risk they are taking, it’s also important to be aware of how the global economy might affect your holdings. For instance, if you hear a news story about a company achieving a financial goal or coming out with new technology – see if you own it.
Considering applying for a job at a big firm in your area? Look up whether you are invested in it. You can mention it during the job interview. It isn’t just about working toward maximizing your potential return; it’s about learning about the world around you and using that information for your benefit.
Investing Against Your Beliefs
This is a big one for those who consider themselves politically or environmentally active. It’s possible you could own stock of companies in your 401(k) or IRA that are the same ones you are marching against or calling your politicians about. In fact, if you own a large-cap or small-cap U.S. stock fund, it’s probably likely.
Big oil, big banks, fracking, companies owned by politically active CEOs, gun companies, and so on are all a part of the major indexes, which means they can end up in the mutual funds you buy. This isn’t meant to convey whether they are good stocks to invest in or not. But if you don’t want to support their business models, it starts with not being an owner of their company.
Planning Mistakes
Choosing between IRA & Roth IRA & 401k – Any savings is generally good for your financial future. If you are employed and work for a company that offers a retirement plan, whether a 401(k), 403(b), 457, TSP or SEP IRA, or SIMPLE IRA, you actually have the decision each year to invest in that, direct your money to an IRA or Roth IRA, or even split it between the two. Your choice is a tax decision but also an access decision. Plans through your employer, like the 401(k), may offer loans if the money is needed. Other plans may not.
IRAs may or may not provide an income tax deduction depending on your income level for the year, but they don’t offer loans and rather limit other circumstances where you can avoid penalties when accessing the money.
The Roth IRA has options built in that allow some access, thereby making saving perhaps a little easier for young people concerned they may need access to it for something prior to retirement. Check with a tax advisor annually which plans make sense for your tax situation.
Not Funding an HSA If Available
Health Savings Accounts are one of the best vehicles in the tax code. This is not to say high-deductible health plans are the best thing going on – there are some drawbacks. But if you already have a high deductible health plan, then you can open an HSA and save money for future medical costs. You can deduct the contributions, in some cases invest it, and then withdraw it at any point, like an FSA.
Not Insuring Yourself
Although this is an article about investing for your financial goals, your largest investment is likely yourself. Your ability to earn a living is the number one thing that will help you meet those goals. If that machine doesn’t work, then everything else can fall apart.
Things like life insurance, disability insurance, critical illness, and even long-term care insurance are important. Some of these you can get through work. Some may be offered but aren’t comprehensive enough to really provide peace of mind. That’s where shopping around and talking to insurance agents comes in. Make sure you research what is available and affordable.
Ignoring Social Security
Millennials, for the most part, won’t retire for a few decades. If assuming Social Security will be a thing of the past by the time you get there motivates you to save even more or take steps to build wealth in other ways, then great. But Social Security going away entirely in your lifetime is a rather drastic scenario that may not play out at all. It’s perhaps likely there will be changes to the program, like pushing back when you can start benefits or the amount you receive, but less likely it will be taken away entirely.
No one knows what the future holds with this massive program, but following the news is helpful for planning. In the meantime, tracking your benefits online at www.socialsecurity.gov is important so you are aware of disability benefits if needed and to ensure your earnings record is at least accurate.
Ignoring Your Home
Accumulating lots of investment assets may not be in the cards for many millennials. Cash flow just doesn’t always allow it. But home ownership is more prevalent as a goal and is just as vital to your retirement plans as your 401k.
Thinking of your home in the context of retirement planning typically puts you in one of two camps. Either wanting to retire while in the home where you currently reside, or your next home perhaps, or planning on moving from that home to your retirement destination. Either way, tracking the value and the pace you are on to pay off the mortgage are relevant. Assess the age at which your mortgage will be paid off at your current payment plan, or if you plan to move, how much equity you might have in the home by the time you liquidate.
Not Staying Busy
Retirement is a long way off, and there is a lot of work to do. But the generation ahead of us has shown in several studies now that those who stay active thrive, and those who don’t age quickly. This could be part-time work, so you should start thinking about the skills and experience you will need to get that job in the future.
The most common theme in these tips is education and learning about the investment and financial world around you. Ask friends, advisors, accountants, estate attorneys, career counselors, or even perhaps your parents. They may end up knowing more about this wealth planning topic and life than they ever imagined.
7 Frugal Habits of Millionaires
Most people think millionaires aren’t all frugal, but did they ever stop to wonder how millionaires got so rich in the first place?
Maybe, just maybe, they started out with modest, frugal lifestyles to get to their millionaire status. Here are some ways in which millionaires lead their lives to live up to their millionaire rankings.
7 Frugal Habits of Millionaires
I’m Frugal: Here Are My Top 30 Frugal Living Tips to Save Money
I’m super frugal, and one of my passions is sharing my frugal living tips with everyone.
Here are some of my absolute favorite frugal tips to help you get started on your journey to frugal living.
I’m Frugal: Here Are My Top 30 Frugal Living Tips to Save Money
15 Things That Are No Longer Worth It Because of How Expensive They Have Become
Everything comes with a hefty price tag these days. From indulgences to essentials, the cost of living keeps rising. We used to consider certain items affordable options, but now they’ve become so expensive that they’re no longer worth it. Here are 15 things that have lost their affordability and make us wonder if they are worth it!
15 Things That Are No Longer Worth It Because of How Expensive They Have Become
28 Practical Ways Frugal People Save Lots of Money
Saving money doesn’t have to mean saying goodbye to life’s little indulgences. With a few smart tweaks, you can stash away cash for that dream vacation, rainy day fund, or splurge-worthy purchase without feeling like you’re on a constant budget patrol.
Think of it as a side hustle that pays off without the extra hours. Whether you’re looking to conquer debt or simply boost your bank account, these tips are guaranteed to put more money in your pocket, painlessly.
28 Practical Ways Frugal People Save Lots of Money
14 Ridiculously Random Tips That Could Save You Lots Money
Want to save some money? There are so many ways to save money that are published in articles all day, every day.
It can be tiring to sort through them and find the ones that work for you, so we decided to scour the internet and find some of the best ones to share with you. But we couldn’t decide which ones to share with you, so we just decided to share the ones we liked, which means that these are pretty random!
14 Ridiculously Random Tips That Could Save You Lots Money