People think of the young as reckless, thrill-seeking,
sky-diving risk takers.
seem anything but when it comes to their finances. They're
delaying home purchases
waiting to get married
waiting to have children
It makes sense given all the financial turmoil they've
experienced (housing crash, financial crisis, unemployment,
etc.). But the fact remains that it's not good for their
recent study from UBS Wealth Management
calls millennials the "most fiscally conservative generation
since the Great Depression." According to their research,
investors aged 21 to 36 have 52% on average in cash, compared to
23% for other age groups.
Holding cash and reducing risk in the short-term can be helpful
for a portfolio. But a long-term shift to less risk-especially as
a young investor-virtually ensures you won't meet your long-term
Chances are, millennials are going to
live well into their 80s, if not their 90s
, and will spend 20+ years in retirement. (Even today's average
retiree is expected to spend 19 years in retirement, according to
the US Social Security Administration.) Given continued
advances in medicine and health, it wouldn't surprise me if my
generation spent 30 years in retirement.
Living 90 years and 20 to 30 years in retirement means your
savings have to last a long, long time. And that means you
have to save
Why "save and invest
? Because saving alone won't get you there.
Consider this. If
you invest $1,000 per month for 30 years
, you could end up with:
The difference between a, b, and c? Assuming a 0%
return, versus a 4% return, versus a 10% return. Cash
generally yields 0% (right now, its yield is actually
negative). Bond returns traditionally range between 3 to 5%
and stocks generally range between 8 to 10% over the long
run. The only way to get to the bigger numbers is to take
on some risk.
Put another way: if you don't want to take on risk, you have
save more in cash
to make up the shortfall. So, in the example above, you
could either sock away
and invest it in a diversified portfolio, or try to save
The choice to save $360k or $2.3 million over a lifetime is
yours. But the risk of not investing is risk all the same.