Before we start, there is something you should know: I, too, am a millennial, which means that I am in your shoes, At the beginning of my career, I struggled with balancing everyday expenses, student loans and saving for retirement.
People view saving for retirement in different ways. I have met countless millennials who say the same thing: “I’m young! I have plenty of time to think about retirement.” This sounds like nails on a chalkboard to me, because, as a financial advisor, I know that the most important time to save is when you are young.
Having met with many clients of all ages, I’ve observed that there is one common regret almost all of them have: not starting to save earlier. So, when should you really start saving and investing? YESTERDAY! Time is on your side if you use it. If you’re young, you can take advantage of the power of compounding and increase your wealth tremendously over time.
Now, I know what you are thinking, because I have had that same thought: “I can’t afford to save right now.” The harsh truth is, you’re always going to think that, no matter what you’re earning. I have met a number of middle aged people making hundreds of thousands of dollars per year who say the same thing. You may have student loans, everyday expenses and rent to pay, but there will be even more expenses the older you get. Once you buy your own place, a new car, or get married and start a family, those expenses will only continue to grow.
The best thing to do is to get into the habit of saving and investing, even if it’s just saving $10 a week. That $10 will turn into $520 by the end of the year, and that’s not even including the interest you might earn on it if you put it into a simple savings account. Once you begin, you can escalate that $10 saved per week to $20, and then $30, and so on, until you are saving a large amount without even having to think about it. (Check out one of my previous articles, which shows how you can have almost $1,700,000 in retirement just by saving $5,000 a year for 10 years.)
To get a sense of how much you will need in retirement, you should start with a financial plan. At Twelve Points, we provide complimentary financial plans to all of our clients. While online retirement calculators can be a good starting point, to have an accurate depiction of the whole financial picture, you need a comprehensive financial plan.
Twelve Points Online Advisory (TPOA) lets us create a financial plan for you to follow and allows you to invest from the comfort of your home. Unlike other online advisors, we look at your entire financial picture, not just the accounts that you have with us. Your accounts and financial plan are integrated together so you can see what every deposit is doing to help you meet your goals.
We also take a different approach to investing than most. The typical financial advisor will recommend an 80/20 portfolio for millennials; that is, 80% in stocks and 20% in bonds, which is great in a market that is continually increasing. However, when the stock and bond markets are at all-time highs, you’re exposed to a lot of risk in the event of a market correction or crash, like what happened in 2008. To decrease that risk, we also include alternative investments, such as real estate, managed futures and global macro funds, in our clients’ portfolios. I won’t get into the weeds about what each of those types of investments is, but the main goal is for them to grind out a steady return while avoiding the large ups and downs of the market.
Our goal as a firm is to have our clients up 6%, whether the market is up 10% or down 10%. This makes sense when you put it in dollars. Say you have $10,000 invested in the stock market, and there is a crash that decreases it by 50%. That leaves you with $5,000. You might think you’d need to earn that same 50% to get back to the original value. However, 50% of $5,000 is $2,500, so if you did that, your investments would only increase to $7,500. In actuality, you would have to earn a 100% return to climb back from that 50% loss. By having a more conservative approach and using alternative investments, we aim to avoid this from happening.
To learn more about smart investing that combines the convenience of being online with having a comprehensive financial plan through Twelve Points Online Advisory, click here.