While almost half of millennials believe investing is for them, nearly as many think it’s too risky. Because of that, as a group they hold about 70 per cent of their savings in cash.
That was the upshot of a survey from BlackRock Inc. one year ago. Another from Harris earlier this year revealed that just 20 per cent of millennials are invested in the stock market, with 40 per cent saying they don’t have enough money to do so.
That’s the worst way to look at it, one expert says.
“Anyone, especially them, can benefit from financial strategies such as budgeting, continuous savings-investment plans and of course, most importantly, debt management,” says Chris Buttigieg, senior manager of wealth planning strategies for the Bank of Montreal in Toronto.
With that in mind, here are seven strategies to help millennials – those born from the early 1980s to mid-1990s – become better investors.
There’s no time like the present to kick things off, advisers say.
“Most millennials are looking at ways to getting started, and a lot of them get started because somebody older than them told them to get started,” says Dean Owen, a financial planner with Cherry Financial Services Inc. in Saskatoon.
“Family encouragement, friend encouragement and things like that – a lot of them just need to be told.”
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What money is coming in, what money is going out? Amid the spending, where can dollars be shaved off? It’s like starting a new fitness or diet regime, says Carol Bezaire, senior vice-president of tax and estate planning at Mackenzie Financial in Toronto.
You look at what you’ve been eating, she says, “and you realize, ‘Oh, I didn’t realize I ate that much.’ [Clients] don’t realize they spend that much.”
Those uncomfortable with going it alone should look for help. The Internet is an infinite resource, but it’s hard to find the right information there, Mr. Owen says. Millennials would be well served to complement that with investing books or courses, or consulting an adviser.
Retirement is a distant dream for most millennials, but other goals should be set in the meantime, as those will affect how they invest. Buying a house, getting married, setting aside college funds for the children – all will affect an investing strategy.
Start with a tax-free savings account (TFSA) rather than a registered retirement savings plan (RRSP). “If you need flexibility in what you’re doing, then invest within your TFSA first and you can catch up with the RRSP later,” Ms. Bezaire says.
A lot of millennials carry college or university debt, but that need not hold up an investment strategy. Some financial planners advocate paying loans off as soon as possible, but they don’t all agree.
“Budget how much you want to pay down on your debt and take the balance of it and put it into investing,” says Ms. Bezaire.
With about 45 years or so until retirement, millennials as a group are the most able to embrace risk. But some can go too far.
Patrick French, principal at Edward Jones in Mississauga, draws on his own experience as a cautionary tale. In his younger days he was always looking to hit an investing home run. At age 19 he made his first RRSP contribution and decided to invest in a junior mining stock. The company is no longer in business, and the move set his plans back as he lost his money and the RRSP contribution room as well.
“That was an unacceptable level of risk. I should never have done it,” he says. “So people need to be in the market, but through a diversified portfolio of high-quality companies, what I at that age would have called a really boring portfolio.”
Following this strategy, he says, will provide consistent performance. “You have to have equity exposure, particularly at that age. But you manage that risk by being diversified and holding high quality stocks.”
Choose an amount to invest each month, whether it’s $100 or $200, and stick with it. Set up a consistent contribution through a preauthorized contribution and/or dividend reinvestment, Mr. Owen says.
“Nothing is better for a financial plan than consistency, commitment and time,” he says, “and millennials have got the time.”Report Typo/Error