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Financial Planning Advice for Millennials: Don’t Fear the Stock Market

July 17, 2017

Millennials and wealth management aren’t two things that normally go together ... why? Their aversion to risk is part of it. Find out how early financial planning can benefit this generation.

Millennials and wealth management aren’t two things that normally go together ... why? Their aversion to risk is part of it. Find out how early financial planning can benefit this generation.

The rise of Reality TV is associated with the rise of the Millennial Generation. The new reality is that Millennials have moved ahead of the Baby Boomers and are now the largest generation in American history....but many are hesitant to manage their money…. Why?

Why millennials steer away from wealth management

Living in this new reality, Millennials of all ages often see their career trajectories and retirement in a way that is much different than their parents and grandparents saw theirs. The “Instant Gratification Generation” wants to enjoy life now. Gone are the days of working for the big company now, to enjoy life later. They want a job that allows a great work/life balance while they're young so they don’t have to wait to enjoy life. So, how do you find balance and enjoy the here and now, while at the same time making strides toward a secure financial future?— Patience.

While patience may go against the very core of a millennial, it does not go against tried and true investment principles: Time in the market versus timing the market.

Starting sooner rather than later could reap valuable benefits

Consider this: A millennial who starts saving for retirement at age 23 will accumulate more than $1.2 million in savings by age 65.

On the other hand...if someone starts investing at 32, that person would have just over $600,000 at age 65. The person who started at age 23 would have more than double the person who starts on the same path at age 32.

This calculates to 51% less in retirement savings by waiting.

But there is still that hesitation...why?

“Fear” of the Stock Market

For millennials, investing in the stock market is viewed as a daunting task. The fear of risk is one that is understandable, but why are millennials more hesitant than ever before?

  • The Millennials experienced the effects of the 2008 market collapse sparked by the financial crisis and before that, older Millennials will remember the bursting of the internet stock bubble in 2000.
  • Three decades of flat wages and a Great Recession left over 15% of millennials in their early twenties out of work.
  • Millennials face a 20-year trend of decreasing labor market mobility. Labor market mobility started to decrease in the year 2000, just as the oldest Millennials were entering the job market.
  • When workers don’t move around, both from job to job and from region to region, employers have more leverage when negotiating wages which translates into employees getting paid less. Unfortunately, for young millennials whose careers started with this trend they are finding it difficult to make up lost earnings from these slow years. The effect of initial low earnings is compounded when future raises are lower, thus people are less able to save and invest in ways that would provide income in the future.

Add to all of this the record amount of debt this generation is carrying, and you are left with a serious economic dilemma. Although they have frequently been labeled as materialistic, spoiled and saddled with a sense of entitlement, Millennials feel that they will not be able to achieve life goals such as finding their dream job, buying a house or retiring until much later in their lives than previous generations did.

Start an investment program now

Sure the stock market is confusing and can be scary at times. However, you cannot take advantage of a rising market with your money sitting at the local bank in a savings account earning 0%. Starting an investment program now gives you more time on your side – saving for tomorrow has to start today. Waiting just means that you will have to set aside more later to make up for lost time.

Yes, millennials face the most uncertain economic future of perhaps any generation in America since the Great Depression. With that uncertainty they are still expected to control assets of up to $24 trillion by the year 2020. These are real assets that will help frame their futures - what will the Millennials do with those assets??? Now that would make for one interesting Reality TV show!

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