I was born in 1979 – a year that places me at the tail-end of Generation X but still makes me cool enough to give advice to Millennials about investing. My mom worked in a bank and encouraged me at an early age to save and invest. I started investing in mutual funds at 18 and, a few years later once I had $25,000 invested, took mom’s advice again and opened a self-directed RRSP account at TD. That’s where my DIY investing journey began, and I haven’t looked back.
Millennials came of age during the global financial crisis. They watched as their parents lost half their retirement savings when the stock market crashed in 2008. Couple that with historically low interest rates and it’s not surprising to hear that Millennials are weary of investing and unsure where to park their savings.
Indeed, TD recently issued a report, which found that 36 percent of Millennials don’t know if it’s the right time to invest, while 22 percent say it’s definitely not the time. Furthermore, 37 percent say they don’t invest at all.
All of these misconceptions lead to analysis paralysis – over-thinking a situation so much that a decision or action is never taken.
I know the feeling. I sold my mutual funds and opened a self-directed account shortly after the great stock market crash; when fear was very much still heightened and markets as volatile as ever. Looking back it was a great time to invest, but at the time I was scared that I made a huge mistake.
I learned to ignore short-term volatility and realized that the long-term direction of the stock market always points up. That means starting an automated savings plan and staying invested in good times and bad. Seven years after I started DIY investing I’ve got a fairly good grasp of my temperament and how to tune out market noise and stick to my plan.
My advice to Millennials who are on the fence about investing:
1. Get started
Nearly half of Canadian Millennials surveyed by TD who don’t currently participate in self-directed investing admit that it’s because they don’t believe they have enough money.
Believe me, I understand there are a million financial priorities competing for your hard-earned dollars. But everyone, and I mean everyone, can scrape together a small amount to put into savings.
Calvin MacInnis, senior vice-president at TD Direct Investing, says the first step to investing is simply to start, regardless of how much capital you have.
“With time on your side, a long investment horizon can help mitigate the risks of market volatility, and you also reap the benefit of compound growth and the prospect of multiplying returns,” he said.
You know the saying: the best time to plant an oak tree was 20 years ago. The second best time is now.
2. Put your money to work
It’s not enough to set-up automatic contributions to your retirement plan. If that money just sits in cash or a high-interest savings account, you’re missing out on the opportunity to participate in stock market growth that can compound and literally pay dividends for decades.
Paralyzed by all the different options available to a DIY investor? You don’t need an MBA in finance to put your money to work. TD Direct Investing’s WebBroker platform, for example, features a range of videos, webinars and seminars to help new and seasoned investors make informed decisions when managing their portfolios.
When in doubt, keep it simple. Whether it’s a portfolio of ETFs, e-Series funds, or dividend payers, find the investing approach that works for you and stick to a simple formula each time you add money.
3. Get comfortable
When it comes to investing, there are many benefits to being in the driver’s seat and steering the direction of your financial future. However, despite having easy access to technology, 24 per cent of Canadian Millennials surveyed who don’t participate in self-directed investing think it’s confusing to navigate online investing technologies.
That makes sense. If you’re not comfortable going online, moving your money around, and making a trade, DIY investing is going to be a challenge.
“Look for a platform that is user-friendly, intuitive and includes educational resources to help get you started, especially when you’re looking to place your first trade,” said Mr. MacInnis.
TD recently upgraded its WebBroker platform and not only is the new design much easier to navigate; it also offers useful information when it comes to tracking the performance of your investments, including capital gains and losses, dividends, and interest.
Becoming a DIY investor has been empowering and it has allowed me to take more control of my finances, lower my investing costs, and help me understand who I am as an investor.
Along the way I changed strategies – moving away from picking individual stocks and instead adopting a two-ETF investing solution. My self-directed retirement portfolio has grown from $25,000 to $130,000.
It’s been a great ride, but I wouldn’t be this far along had I not started saving early, put my savings to work in the stock market, and get comfortable with both my investment platform and investing approach.
Millennials, what are you waiting for?
Please note this post has been brought to you in partnership with TD, all thoughts and opinions are my own.
Two decades ago, Thomas Stanley and William Danko set out to interview wealthy people for their best-selling book The Millionaire Next Door. They started out in the affluent neighbourhoods on streets dotted with extravagant homes with luxury vehicles parked out front and in-ground swimming pools in the backyards. They were shocked to find out that the people living in these homes were not wealthy at all. Many of these upscale homes had huge mortgages. The luxury cars were leased and, while the occupants had high salaries, they had very little net worth. They only seemed wealthy.
Instead, they found millionaires in modest homes in reasonably priced neighbourhoods, working and living next door to people who have a fraction of their wealth. They were living well below their means and not calling attention to themselves. They didn’t have the big-spending lifestyle most of us associate with rich people.
To be clear, for this purpose a wealthy, or high net worth, individual is described as someone who has at least $1 million in investable assets that is not inherited. These assets do not include their home or cottage.
Also not included are the ultra-high-net-worth, super wealthy individuals with a bankroll of more than $100 million who actually represent only a small minority of Canadians.
The road to riches
What can the average Canadian learn from the habits of the wealthy? Danko and Stanley found these factors common to wealthy people:
1. They live well below their means
When I first read this book years ago I thought – what a bunch of cheapskates with their Timex watches, $50 suits, and 10-year-old Ford trucks! If I had that kind of money, I’d at least upgrade a little. I’ve known a few people who had a large amount of assets and spent hardly anything, ultimately leaving their wealth to relatives, and often distant ones at that.
I understand now that the millionaires mentioned do tend to be frugal, but they enjoy luxuries that are meaningful to them, and only once they are well on the road to security and financial freedom.
2. They chose the right occupation
Many are small business owners or entrepreneurs, but you don’t have to own a business to get into this circle. Often they are hard-working, well-educated, middle-to-high income earners.
I’m not suggesting you choose a career primarily for the high salary. But, it’s obvious that if a person is educated and trained in some sort of profession, they will do much better than say, a cashier or shipper-receiver.
3. They have a good marriage
Dual incomes enable couples to get ahead financially much more quickly. However, even more important are spouses who have similar values and goals and are willing to resolve any differences and work together in building their wealth.
There is no quicker way to lose half the assets of a household than to go through a divorce.
4. They are skillful in targeting opportunities
People shouldn’t worry about the doom and gloom reporting on the news and things they can’t control. Instead, have a long term view of investing and don’t let emotions sway your decisions. Have cash available to buy when markets are down and to take advantage of any bargain opportunities.
Start saving and investing in your early years to take advantage of compounding and reinvested dividends.
Pay less for purchases by shopping for bargains and learn to negotiate. Avoid high interest credit card debt. Use smart tax reduction strategies.
Allocate your time, energy, and money efficiently, in ways conducive to building your wealth.
5. Their adult children are economically self-sufficient
Danko claims that it’s really about buckling down and living on less.
“How in the world can you be an investor and let compounding work for you if you are not a saver? And how can you be a saver if you are in debt? Many people who are strapped with debt are looking for a magic bullet, but continue the free-spending ways they have become accustomed to. Live on 80% of what you make, and save and invest 20%. Let the time value of money work for you.”
Calculate how much money you will earn over your working life. Most people will earn well over a million dollars in their lifetime, but very few will become millionaires.
Accumulating wealth takes discipline and hard work.
We all want a sense of long-term security and peace of mind as well as the comfortable lifestyle that wealth provides.
Saving diligently, being frugal, setting aside a portion of your income for the future and investing wisely are the strategies to becoming the millionaire next door.
Do you think you live next door to a millionaire? Or, is it you?