I am just on the cusp of the generation that’s now known by the unfortunate name “the Millenials.” However, if I am a millennial I’m pretty much the oldest you can be and still be considered part of the grouping.
The reason I bring it up is because by all accounts, we millennials are not doing a very good job of growing up. We’re not getting married, we’re not having kids, and, more concerning to the broader economy, we’re neither buying houses nor saving money.
While I’m not so concerned about many aspects of our free-wheeling, devil-may-care lifestyles, the investing end of things is not so good. In fact, it’s not good at all. Here’s the thing, the nature of compounding interest means that you’re much better off cramming whatever meager savings you can scrape up in your 20s into a 401k than you would be making solid, regular contributions beginning at 45 when you finally have that stable full-time, well-paying job.
That said, we millennials, whether gainfully employed or not, are still struggling. The idea of having money, let alone some sort of weird, extra money that you don’t have to spend immediately, is a pretty foreign concept to us. Yet, this is one of those situations where a little bit now can mean a lot later.
So, with that in mind, I’m dubbing 2015 the year of the investor. And here, on the first trading day of the year, I’m setting out some New Year’s Resolutions for the more savings-averse among us.
There may be no smarter way to force yourself to sock money away than setting up a monthly deduction, even if it’s a tiny one. Plenty of brokerage accounts offer an automatic monthly deduction, and that’s a great way to go. If you’re employed, you can often set up an automatic monthly deduction from your paycheck, which I like. What better way to keep yourself from spending your money on something stupid than by preventing yourself from ever laying hands on it? This makes even more sense when one considers the tax benefits you get from investing income rather than collecting it.
I know some of you are saying “Yeesh, given how tight my budget is, I can’t imagine making this work.” Sure, I feel you. But seriously, stop and think – ACTUALLY think – about everything you spend money on. Even something as small as $10 a month can go a long, long way if you start early enough. Can you come up with $10 a month? Yes you can. Seriously, two less lattes a month and you’re WELL on your way to an actual nest egg.
Which isn’t to say you should stop at $10 a month. More is definitely better. Sure, there may be a couple of lean months where you’ll consider reducing things, but it’s so much better to stick it out. So, for your first resolution, find at LEAST $10 a month in your personal budget to invest.
Take Part in Your Company’s 401k Plan
This is really just an extension of that first resolution, but it’s a massive no-brainer. In the event that you have a job and that job has a 401k plan, USE THAT OPTION. I can’t begin to express how much of a difference it can make.
Firstly, the tax issue is considerable. The money getting funneled into your 401k is tax free, so you’re getting to keep more of it by saving it. Bing, bang, boom. Now you’re compounding your compounding interest by getting a crack at some money you would be paying in taxes anyway.
And if your company matches 401k contributions FOR GOD’S SAKE, TAKE ADVANTAGE OF THAT. Free money, people, that’s what that is! Now you’re getting a tax break AND doubling that amount, AND socking it away so it keeps growing in value. I get that sometimes monthly bills make life tough, but do what has to be done.
So, if you have access to a 401k plan, make one resolution of putting away 3-5% of every paycheck. And if your company matches contributions, put in as much as their upper limit for matching allows.
Come Up With a Plan
Preferably with the help of a financial advisor, but even without one, there’s plenty of resources you can use to formulate an investing strategy. Then, spend the rest of the year sticking with that plan. There may be ups and downs, but have some confidence and don’t let the natural fluctuations of the market shake you.
So, take January to sit down, do some reading, and come up with a strategy both for finding that monthly deposit and what to do with it.
Find a Stock You Like and Go With It
For the most part, I’d advise retail investors to stay away from individual stocks. It’s a really iffy proposition. Look for ETFs and mutual funds for the most part to diversify your holdings. Spread out your risk and be pretty thrilled with the 8-10% annual returns that a broad-based investment strategy is likely to bring in.
That said, that doesn’t mean you can’t keep a small portion of your funds invested in things you have a personal belief in. Legendary investor Peter Lynch long held that one should invest in what you know and that the small-time investor’s ability to spot a good product was actually much greater than the fund manager. There’s always some information that you have that they don’t. Not the sort of illegal, insider-trading type information. But you use products.
So, for your 2015 resolution, look around you and, when you find a company that provides a product or service that you really think is great, take that next step and learn something about the stock. If, after that extra research, it still looks like a good investment, take a small chunk of your investments and take the plunge.
Oh, and one piece of advice? I know it looks like it’s been on an upswing over the past month, but don’t put all your money in egg-nog futures. Trust me.
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