I was reading an article recently that suggested that millennials will get shortchanged in retirement and it made me reflect and wonder if others are seeing something that I'm not seeing.
Doom and Gloom news sells. That's just a fact of life. I've seen stories recently suggesting a 50-60% crash in the Dow and the S&P500 recently, which for the record seems to me to be complete rubbish. The other recurring theme that I've also been observing is that millennials are set for a hard life when it comes to retirement. And I've stumbled upon yet another article to suggest this seems to be the case. In this case, the reasons cited are that the employment markets have been tough and wage growth has been particularly so for millennials. It also suggested that many millennials are loaded up with student debt that they are struggling to get out from.
While I'm a few years out from being a millennial, many of the same issues applied in my case. I took on some significant student debt in coming to the US to study. All of that student debt is since long gone, but certainly getting it paid down was no easy feat. The job market over the last few years here certainly has been sluggish, but it looks like we are now on the cusp of some sustained, significant job growth, which should help folks hold down a steady job and really make some major inroads into savings and wealth building.
While debt and a poor job market are no doubt some significant barriers, I think this type of negative thinking really does a disservice to some of the key strengths that millennials possess, which they aren't significantly exploiting.
Time is the greatest asset that you can have in life, in my opinion. It's the one thing that you can never get back. Time works wonders for your investing life as well as in your personal life. It forgives the acquisition of strong businesses at poor valuation, and works wonders for great businesses acquired at great valuations.
It's said that Einstein referred to compounding as the 8th wonder of the world. If so, its with good reason. The ability for individuals to grow their investments at progressively faster rates as each dollar gets reinvested is truly pretty amazing.
It also helps explain why the best time to start investing is as soon as you reasonably can. Compounding investment dollars at an early age can leave you with a significant amount of wealth later on in life. Socking away just a few dollars, regularly and periodically can lead to great wealth long term. Millennials who can't or don't see this are really doing themselves a huge disservice.
As a person with 30-40 years of just being able to let time work wonders on an investment portfolio, that's the greatest gift you could be given to access a happy, fulfilled retirement. Ignore that at your peril. Taking advantage of $50, $100 of free cash flow a week, or even a month can generate a nice windfall. Are there really a majority of college educated graduates with large debt burdens that can't manage even that kind of free cash flow?
Best market pricing in years
It's no surprise that the last 5 years have been amongst the best set of market conditions in years in terms of generating total returns. The S&P 500 has doubled over this period of time. Just finding an index and plonking your money in there would have done wonders for your net wealth. One doesn't have be invested in hedge funds or alternative asset classes to do really well. Millennials in an asset accumulation phase with excess cash reserves to plonk down in the market should have done pretty well. It would have been much harder for retirees to take advantage of such booming market conditions. These periods of above average return come along pretty rarely. It's not just the stock market that's benefitted. The property markets have also experienced strong growth, although the amount of cash you'd have to outlay would have been far more of a struggle. Millennials have also had the benefit of several fairly steep pullbacks both in 2020 and 2021 in transformative growth businesses in particular to deploy investment capital and generate strong returns.
Market access has never been easier
Historically, one had to go through high touch brokers who would charge you an arm and a leg to transact. Now there are so many tools that allow investors to get access to the markets and a broad class of investments that make it easier than ever for people to manage their own money. I'm not even talking about just traditional brokerage accounts. Services like Acorns and Sofi facilitate super low cost trading to build a diversified basket of companies. You can create your own S&P 30, with no ongoing trailing fees at minimal trading cost. That may have traditionally cost you over $1000 in trading fees to put together on your own. Best of all, free access to research is all right there at your fingertips. Millennials should be primed to have an awareness of, and utilize all of these services, which are high tech and low touch
Money Management has never been easier
Tools to help people track and manage their expenses have never been easier. One can now track and manage every aspect of your finances including where dollars are spent, how much you have left over to save and how your investments are tracking. Tools like Personal Capital provide visibility into cash flow every month, broken out by category. One can see the categories of funds that are creating a dent in spending, and take corrective action to manage these if needed. Budgeting is a hugely important step in getting planning for retirement. A good budget helps you work out how much you have to invest and grow your money. Without a basic budget you are flying blind in terms of trying to achieve your financial goals. It's never been easier to quantify everything, and automate your investment program, all with the help of robot advisors should one choose to take advantage of this.
The 401k Tax advantage
The Government provides very little in terms of free handouts in life. I'm a firm believer that when they give you a handout, you're obligated to take it. The 401k tax break is one such handout. How great is it to get a tax break on current contributions that you make now, have the ability to reinvest and compound those earnings over many years, and then eventually pull that money out at far lower tax rates when you are retired and earning and making less? Sure the pension that the boomer generation enjoyed is now a thing of the past for millennials, however the ability to sock away money tax free, for an extended period of time and earn an average rate of 7-8% annually? That's surely a way to get to a secure rapid retirement if I've ever seen one. I realize not everyone has access to a 401k program, but those that do should be surely maxxing them out.
In my opinion, conditions have never been better for young people to manage their own money, access the markets and invest. Sometimes, its about seeing the glass as half full rather than half empty.