When it comes to saving, millennials may have it together when it comes to saving, but they're seriously slacking in another important part of planning for their futures – investing. According to new data from Harris, nearly 80 percent of the generation is avoiding investing altogether. The same data shows that 40 percent said they don’t have enough money to invest, 34% said their lack of knowledge of the stock market was holding them back, and 13% blamed debt for student loans specifically.
Although these are somewhat valid reasons to shy away from investing, they lose their validity when you consider millennials are squandering the most important asset for investors – time.
As the future of retirement security becomes increasingly more bleak, the importance placed on investing early on in life becomes higher and higher. If you’re one of the millennials currently slacking on investing for your future, it’s likely that one of the three reasons listed above is holding you back. Fortunately, there are options to make low risk and affordable investments to at least get a good start on investing for your future while you’re young. Here are four solid options:
Exchange Traded Funds
Exchange Traded Funds (or ETFs) are marketable securities that track an index, bonds, a commodity, or group of assets. ETFs trade like a common stock. They experience price changes throughout each day. These are an excellent option for millennial investors as they typically offer higher liquidity and lower fewer fees than mutual fund shares.
A great ETF option for new investors is precious metals. According to Forbes: “Holding metals is a way of spreading portfolio risk during times of economic upheaval and war, and when inflation threatens currency values.” If this sounds like an appealing option for you, there are a lot of awesome online guides out there to help you find out which precious metals are most popular among seasoned investors and why.
Investing in your 401(k) is essentially a way of getting free money. The more you contribute, the more free money you get. According to CNN Money, this is the result of three important attributes of a 401(k) which include:
- An immediate tax break
- The possibility of 401(k) matching from your employer
- Tax-deferred growth (there is no need to pay taxes each year on capital gains, dividends, and other distributions)
The best way to determine how much you should put away is to figure out how much you will need and how much time you have until retirement. Financial planners typical recommend saving at least 10 percent of your income. If you’re strapped for cash and cannot contribute the ideal amount, even investing just enough to get your employer to match for now will help you make strides toward building your retirement fund.
President Obama introduced MyRA as a new type of savings bond to help Americans become accustomed to saving for retirement sooner rather than later. The bond is intended to provide an affordable retirement savings plan for new savers, low and middle-income earners, and people who aren’t offered a retirement savings option through their employers.
Treasury Secretary Jacob J. Lew explained it is a “cheap, risk-free, and convenient way for people to invest who otherwise wouldn’t have the means to”.
The investment is backed by the United States Treasury and earns interest at 1.500 percent APR. You get started by setting up automatic contributions. According to the official MyRA information site, you can withdraw the money you put into your account at any time, and the account stays with you even if you change jobs. If this sounds like an appealing option for you, I recommend checking out the site to learn more.
DRIPs or DRPs
DRIP and DRP are abbreviations for dividend reinvestment fund. This small investment option allows investors to purchase stocks directly from companies without going through a broker. Financial specialists tout this type of investment as one that is cheap enough for newbie investors and impactful enough to make a significant difference in an investor’s portfolio.
Some of the larger benefits of DRIPs and DRPs are dollar-cost averaging, no commissions, no minimum investment requirements, and little to no fees.
The Motley Fool offers up an excellent guide to DRIP and DRP investments if this is something you’d like to consider adding to your portfolio.
Now that you have an idea of which investment options might be best for the typical Millennial, it’s time to get out there and start investing. If you plan to invest in stocks, I might recommend working with an online advisor (or robo advisor) until you get the hang of things. These advisors typically offer a lower rate and increased convenience which appeals to most investors within the Millennial demographic. Forbes offers up an excellent guide to some of the best online advisors here if you’re looking to scope out your options.
If you have any additional tips or insights you think fellow readers should know about, I’d love to hear them! Please feel free to share in the comments.