A Financial Roadmap for Millennials
Being a millennial means you’re young. And while it’s great to have youth, it’s vanity unless you put it to good use.
It’s been said that a good plan today is better than a perfect plan tomorrow. This is particularly true when it comes to saving and investing. The sooner you get started, the better.
Before we talk about investment plans, I have something to share with you about the millennial generation (people between ages 18-33) that’s bothering me.
From an investment angle, millennials have been stereotyped. They are “slackers,” “stock market skeptics”, and they are too “spooked to invest in financial markets.” are just a few of the misleading views being promoted today. If you’re a millennial, ignore these empty classifications. Do what you need to do to get ahead financially and don’t let anybody tell you that you’re not capable of achieving a positive outcome.
Now, I’d like to share four simple but robust investment strategies for getting and staying ahead:
Pay Yourself First
One excuse for not saving and investing that millennials sometimes use is the erroneous argument that “I want to pay off my student loans and other debt before I start saving.” Why doesn’t that logic hold up? Because eventually, your student debt may someday be replaced by other debt like a mortgage. And if you train yourself to always delay the discipline of saving and investing because you’re in debt, you’ll never get started.
Regardless of how much debt you have right now, millennials should be saving and investing a portion of their income, however tiny that income may be. Also, the amount you save doesn’t matter. On the other hand, paying yourself first starting right now and continuously without letup over the coming decades is what matters.
Build the Foundation of Your Investment Portfolio
After you’ve made the grown-up decision to save money, the next question becomes “where do I invest?” The logical place to start is on a solid foundation of low cost and diversified funds that hit the four major asset classes: stocks, bonds, real estate, and commodities.
Some of the low cost index ETFs are outstanding portfolio building blocks that cover these major asset clases include the Schwab U.S. Broad Market ETF (NYSEARCA:SCHB), Vanguard FTSE Developed Markets ETF (NYSEARCA:VEA), Vanguard FTSE Emerging Markets ETF (NYSEARCA:VWO), Vanguard Total Bond Market ETF (NYSEARCA:BND), GreenHaven Continuous Commodity Fund (NYSEARCA:GCC) and the SPDR DJ Wilshire Global Real Estate ETF (NYSEARCA:RWO). Check with your broker or investment advisor, some of these ETFs may be available as commission free trades.
Prioritize Your Investments
Constructing a well-built investment portfolio is like constructing a home; you can’t build the second and third story until you’ve first built the structure’s foundation.
Similarly, a diversified portfolio with foundational or core exposure to the major asset classes via diversified ETFs is a logical place to begin. Only until after you’ve built your portfolio on this type of solid foundation can you begin to experiment with non-core assets like individual stocks, actively managed funds, call/put options, private equity, hedge funds, and venture capital. This process of prioritizing your portfolio around core asset classes via low cost ETF vehicles will also become your model investment blueprint for when you eventually have a 401(k) retirement plan.
Volatile markets, an economic recession, the Federal Reserve’s next move, and all of the daily happenings that none of us control are not your enemy. You in fact are your own worst enemy. And everything that happens with your money and your finances – good or bad – is your responsibility. If you fail, you’re responsible and if you succeed, you’re responsible.
Unless you commit to a disciplined savings habit, you’ll always be like the masses; scrapping to get by. And unless you take that savings and invest it in a logically disciplined manner, you’ll end up like the masses; always underperforming the market and wondering why.
Being young doesn’t give you a free pass to be ill-informed or lackadaisical about your finances. With just a little bit of effort, disciple, and a mature view of money – you can and will succeed. This much I know.
Ron DeLegge is the Founder and Chief Portfolio Strategist at ETFguide. He’s inventor of the Portfolio Report Card which helps people to identify the strengths and weaknesses of their investment account, IRA, and 401(k) plan.
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