My Millennial Friends Aren’t Investing - But They Should Be
I’m in my early 30’s. As someone who works in finance, I know that one of the most important things I can do for myself at this point in my life is develop strong financial habits like saving, budgeting, and investing.
Most of my friends work in other fields, and while the majority have a good grasp on budgeting, many aren’t saving as much as they should and even fewer are investing.
Some own trendy investments like Tesla stock or Bitcoin, but not many of them are taking advantage of retirement plans offered through work or investing in individual accounts or IRAs.
Nationally, around 50% of people under 35 own stock holdings.[1] But based on the conversations I’ve had with peers in my age group, I suspect that in Santa Fe and in New Mexico in general, that number is probably much lower.
A study by the Federal Reserve found that people living in high-income, white, well-educated zip-codes with high concentrations of private sector workers were more likely to be investing than people in zip codes with lower incomes and high concentrations of government workers, craftspeople, and people of color.[2] Because we live in a poor state in a city where most people don’t work typical private sector jobs at big companies with employee-retirement plans, these findings could help explain the abysmal rate of investing among my peers.
I understand that it’s tough: As a young person making just enough to pay your rent, a car loan, and go out for a few drinks with friends, investing for the future can easily fall to the bottom of your priority list.
Moreover, the widening wealth gap, sky-high home prices and the precariousness of social security make many millennials feel like the system is stacked against us. To fix these problems we need policy interventions that increase basic financial security for the working and middle classes.[3]
In the meantime, though, there are things we can do to take our economic future into our own hands.
To make the system work for you, you have to invest, and the earlier you start, the further your money will go. This is because of the trifecta of time, the long term growth of capital markets, and the compounding of investment returns.
To illustrate the power of compounding, if you invest $1,000 in the stock market when you are 20 years old, with an average annual return of 10% (the average annual return of large cap stocks since 1928), by the time you are 67 your money will have grown to around $108,000.[4]
Keep in mind that the later you wait to start investing, the less time your money will benefit from compounding. If you wait until you are 30 to invest your $1,000, by the time you are 67 you’ll have only about $40,000. If you wait until you’re 40, you'll have less than $15,000.[5]
According to Fidelity Investments, by the time you are 30 you should have the equivalent of one year’s salary saved in order to maintain your current lifestyle in retirement. To stay on track, by the time you are 67, you should have ten times your salary saved up.[6]
I know that might seem like a lofty goal. The crucial thing to remember is that saving and investing any amount is better than nothing.
The best place to start is to make the habit of saving and investing as easy as possible. Set up automatic deposits, even if they are small, to fund your 401k, IRA, or an individual brokerage account on a monthly basis.
And don’t forget that investing isn’t just about retirement. It’s a key piece of achieving any of your financial goals.
Say you wanted to buy a house. If you had put $1,000 into an S&P 500 index fund ten years ago, and then contributed $150 a month, you would now have around $33,000[7] – just enough for a 10% down payment on a modest home in Santa Fe.[8] If you want to see how far your investments might take you, look for a retirement calculator online.
When it comes to investing, the most important thing is to start with whatever you can spare today. Don’t wait till you’ve paid off your student loans or can afford a financial advisor. There are plenty of online resources and digital investment platforms that will give you the basic information you need to begin.
Start now, and you’ll thank yourself later.
To read the original version of this column in the Santa Fe New Mexican, please click here.
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[1] https://milli.bank/blog/where-americans-keep-their-wealth/
[2] https://www.federalreserve.gov/pubs/feds/2004/200422/200422pap.pdf
[3]https://www.cam.ac.uk/research/news/boom-and-bust-millennials-arent-all-worse-off-than-baby-boomers-but-the-rich-poor-gap-is-wideninghttps://www.cnbc.com/2024/04/03/survey-adults-say-theyre-doing-worse-financially-than-their-parents.html
[4] https://www.ramseysolutions.com/retirement/retirement-calculator
[5] https://www.ramseysolutions.com/retirement/retirement-calculator
[6] https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire
[7]https://tradethatswing.com/average-historical-stock-market-returns-for-sp-500-5-year-up-to-150-year-averages/#:~:text=Stock%20Market%20Average%20Yearly%20Return%20for%20the%20Last%2010%20Years,including%20dividends)%20is%209.52%25.
[8] https://www.zillow.com/