Millenials and Money
The old man was usually heard before he was seen in the neighborhood- his battered, muffler-deprived Chevy Impala made a distinctive tune as it rumbled up his driveway.
His next-door neighbor realized he hadn’t heard that song the past few days-so went to investigate.
Rust Bucket, but no car payments
Just before his hand hit the door jam on the old man’s paint-peeling front door, his nose told him what he was glad his eyes didn’t see.
He called 911.
A police detective sought out the neighbor after the body was transferred. “No foul play.” said the detective. “Thought you’d want to know.”
“He was just a poor old man. Dying alone like that-it’s so sad. He looked to be 80 years old.” the neighbor commented. “He seemed nice enough, but wouldn’t ever let us neighbors get to know him.” “He reminded me of that poor old man in that movie uhhh “Home Alone”…
The detective said, “He was old, 90 last week, and he may have been lonely, but he was far from poor!
He had money stashed everywhere-cabinets, jars, drawers-all stuffed with cash-and not just 1′s, 5′s, and 10′s. He had enough Benjamins I thought I was in a drug dealers crib for just a moment.”
The detective continued: “His TV was a 35 year old black and white, just like my grandpa had. That car is 40 years old, and his furniture looks like Goodwill would’ve rejected it”.
“But he could’ve made a good start on paying off all the foreclosures in this neighborhood with all the money we found.”
“If we don’t find any relatives soon, the state will love getting all this dough.” chuckled the detective as he climbed into his unmarked….
Money and The Elderly
Why would an old man with plenty of money live such a limited, stingy life. Piling all his dough at home and spending nothing on himself?
One explanation could be the effects of growing up during the depression. If your formative years were a time of bank closings, no jobs, hunger, and dust-bowl poverty, your money management just might be affected for the rest of your life, too!
Is the current deep recession, high unemployment rates, and stock market losses going to have a permanent affect on the Millennials, similar to how the Great Depression affects those who lived through it?
Young People and Money Attitudes
- Young investors in polls consistently rank stock investing as risky-with up to 40% saying they would never invest in stocks.
- Young investors have~30% of their retirement accounts in stocks, 2-3 times less than is recommended for such a long-term time horizon before retirement.
- Young investors are choosing conservative stock choices over growth stocks, which may decrease their account growth over time.
What are a few of the dangers of not being aggressive enough with your stock investing as a twenty-something?
- Retirement age-if you plan to retire with a certain nest-egg by a certain age- you need growth you can’t get in more conservative investments.
- Poor market timing success: Those trying to “time” the market usually do the opposite of what has the best long term outcome. Most investment gains in past years are from market jumps of a few “great” days each year. No one can jump in and out and be successful year in and year out.
- Better to be aggressive earlier in life than later-when the risks of loss are greater. No time to make up a bad decade like we recently suffered through.
What can you do now, as a Millennial, to avoid excessive investment conservatism, but not feel so stupid when you see your retirement account drop in value faster than your partners version of foreplay?
- Use a steady approach to investing-putting in money steadily over time will even out the ups and downs.
- Gradually increase your risk exposure. Don’t go from a conservative approach to speculation. As you adjust to increasing your risk exposure and decide you can sleep with that level of risk, add to your more aggressive investments till you reach your long term goal.
For example, let’s say I’m a scared, scarred 25 year old. My shrinking 403 b, (small as it is) is currently 30% in stocks-with most of that in conservative value mutual funds, 4o% in bonds, and 30% in cash.
I would make the following adjustments over the next couple of years. (remember this is not individual advice, just my opinion…):
- Increase my stock holdings gradually to 60-80% with equal amounts growth, emerging markets, and value investments.
- Make sure my bond holdings are invested more on the short end of the curve,1-10 year bonds. Interest rate risk makes long-term bonds a high-risk choice right now.
- Make sure you have some commodity and real-estate exposure-5-10% of your total to help cushion against coming inflation.
- I will repeat my mantra: My 403b is for the 65 year old me! My 403b is for the 65 year old me….over and over again….To remind myself when stocks drop, that I’m investing for 30-40 years from now, not for next week’s lunch money.
And if you are investing for your lunch money, your house down-payment, or a college fund for your 10 year old: STOP-this advice isn’t for you! For that, you need a savings account, and maybe a laddered CD portfolio.
And keep in mind, when you get to retirement age, have a little fun with your money. Don’t let today’s economy make you a stingy, unhappy, cynical, lonely, but rich old person.
Talk to me!
OK, all you 20 and 30 somethings out there: Has this deep recession scared and scared you for life? What are you doing with your retirement investments? If you don’t have any, but have a job with steady income, why not? Do you think Social Security is going to feed and clothe you in 2055?
Dr Dean
{photo credit: simply.jessi c.c.}
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Tags: how does age affect your investing and saving plans, millenials and money, the recession and its affect on young investors, young people and their retirement investing plans
We’re still investing. We still believe that Social Security will be there but probably in a reduced form, and we know that it will not cover everything. We save as much as we can but realize the cold reality: Many people in the past with better Social Security benefits than we anticipate plus getting a pension, something that I’ll never see, can’t make ends meet in retirement, so how is our generation supposed to do better? Scary.
I think we have warped what “making ends meet” means. In the US right now making ends meet means a smart phone for each person, 200 channel cable, 2 late-model cars, eating out, and TV in every room. My favorite times are spent on my back porch enjoying nature with a book, sitting around our fire-pit with friends, or a family potluck gathering. None of which cost much money.
Interesting story! And I agree that the current economic environment is damaging young people. However, we should also remember that in times of extreme economic meltdown there has also been rather extreme decadance – Berlin in the 20s; Warsaw in the 1970s and 1980s. It is hard to fathom peoples behaviour…
There is always a pendulum swinging between excesses. That will never change. It doesn’t mean, though, that we can’t avoid participating in the most harmful behaviors.
This is so true. Fear can paralyze you and the lost time is not easy to make up. The most important thing is to have a plan and stick with it. Being in their 20s they have a lot of time to make up for bad years. Even someone starting out during the last 10 years would have been accumulating investments at bargain prices which would appreciate nicely over the next 10-30 years.
Great point. The savings accumulate so much faster, with compounding that can’t be duplicated by those of us in their fifties.
We’re mid-30s- tale end of Gen X, not Millenials, but while the stock market crash did cause us to lose a significant amount of money invested over the last 10 years, we also recognize that the dollars we’re contributing now (and with raises, those are more dollars than we contributed early on) are buying more stocks.
While the crash has really sucked for boomers, we figure it should be great for us- we’re getting great deals at the bottom of the market, and in 30 years or so, we should be good.
However, I don’t want to try and time the market, so my money all goes into a targeted retirement fund that will automatically reallocate and reduce my risk as I get closer to retirement. Since I am comfortable with risk, I selected one that’s targeted for 5 years later than I actually plan to retire.
That sounds like a great plan. Many age targeted funds are pretty conservative, but you’ve dealt with that by using a little longer time horizon. Keep it up!
Yes, I am. Having seen older folks lose a chunk of their retirement savings is a stark reminder of the power of the stock market. Furthermore, watching stock recover to pre-recession levels poses a mental barrier that says it’s going to drop again.
I’ve lived by Warren Buffett’s motto of buy on fear, sell on greed. To me, the market looks greedy. My portfolio has reflected it. I’ve put more in bonds – to a 80/20 stock/bond split, which is not what I’d like at 24. I would have more of a 90/10 split.
I don’t think 80-20 would be considered conservative, most would say that is aggressive. I’m afraid bond funds are going to be a losing proposition for the next few years. I personally use individual bonds so I can at least collect the face value coupon and not get slammed by the trading that goes on in bond funds.
But it sounds as if you’ve controlled your fear, so I would say you are respectful of risk, not paralyzed by fear. Great job!
Saving for retirement isn’t necessarily about jetting to Paris every year or eating at $100 plate restaurants once a week. It might be the difference between staying a run-down nursing home vs. hiring 24-hour help so you can stay in your own home for longer, or moving to a more upscale facility where the care is better and the food is tastier. It might mean that you get 4th generation drugs with reduced side effects instead of the 1st generation drugs that your lower cost medical plan covers. You are in the medical profession, so I’m sure you have an idea of the health care costs that faces seniors. My mom is as well, and she has drilled this into my head. I truly think that most Millenials have no idea the health care costs that will face them in the future, and that is frightening.
I completely agree that health care costs ruin more “best laid” retirement plans than most anything else. Many of those risks can be managed by proper long term care insurance, (but It will be very expensive as the boomers age….) Great comments!
I plan on taking risks in other areas other than stocks, but also in entrepreneurship. I hope to buy a few properties and if possible get involved in a few other business interests. I think it’s good to take a little risk outside the market as well (so long as you know what you are doing).
It is certainly a great idea to be diversified. That term shouldn’t just mean a diversified stock portfolio, it should mean diversified income stream. I’m afraid those who are so fearful of the stock market that they don’t invest at all will be hurt in 20 years. I hope I’m around to see what happens…
I have been slowly getting exposure to equities through ETFs for the last few years. As a young adult (24) I think our biggest fear is getting buried in debt, and then having no safety net left by the time we get there. My biggest fear has nothing to do with the stock market actually. I believe that in business, rational business interests will always win out over time. My biggest fear by far, is that ridiculous partisanship combined with a democracy that appears to be getting dumber by the day could absolutely cripple us in so many ways going forward.
Those fears, I think, are understandable but are not justified in my opinion. The instant media and 24 hour news cycle has increased the angst of all of us, but if you read history partisan politics have been around since the start of our great country. Our system is ugly at times and we always have a pendulum swinging one way or the other (think about prohibition, the civil war, the civil rights movement) but over time level heads prevail and our great ship rights itself.
Civilizations do fail however, and we would be in greater danger of that in my opinion, if we didn’t have our partisanship fighting over ideas and direction.
My advice is to tune out. Turn off the TV, quit reading the headlines that make up “journalism”. Get out in your community and get to work making it a better place to live. You will feel better. Thanks for dropping by!
I am in late 20′s and I am afraid of investing in stocks. I do invest but that is a small % of my salary. I save money, I don’t spend much but I do not invest it too.
most of my investment are “safe investments”. may be its time to change my portfolio
Learn, read about investing, and your confidence will increase and your fears will subside. A healthy respect is wise, paralyzing fear will prevent your savings from growing as they should.
I don’t see the fear trend waning anytime soon. There is a complete discount between saving and investing. People are putting money in record amounts into savings accounts and very little in comparison into stocks and bonds. I’m afraid overly cautious will be the 20 somethings motto and it will be passed on to next generation to a lesser degree. That said at least their saving it somewhere.
I agree saving in the first place is good thing. Hopefully those of us trying to get the word out have plenty of job security.
Well, my wife and I agree that social security won’t be all that helpful when we get up to retirement age (we’re in our early 30s). We’re trying to save up for retirement, but we’re also trying to pay off debts, pay our monthly bills, and have enough to eat! My job is semi-steady work and she’s in nursing school… we’re hoping when she gets a real nursing job that we’ll be able to start saving for retirement. But right now, feeding our daughters is more important.
I agree basic necessities are number one, paying off debt is number 2 and retirement savings is number three in priority. that said, lifestyle creep and keeping up with the Joneses can make your efforts much more difficult or impossible. So make sure you are keeping your spending in check.
Good luck with Nursing School! that should help a lot!
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