Investing in the age of millennial
I’m an old guy, Gen X, a stocks junkie who came of age in the dark age as far as consumer internet is concerned. Some of you remember languages like COBOL and Pascal, using browsers like Navigator (thanks Marc), can’t forget “You Got Mail” and those loud dialing modems. Yes kids!! it used to take 3 minutes of buffering to load a picture of a cute cat.
Back then I was in college taking investing classes and for our assignments, my Professor would print out dated stock charts out of a publication called Value Line (each Library had one). When I took an internship (’96) at Dean Witters (ever heard?) the broker focused on selling in house products, researched and highly recommended by corporate. I learned that out of the $100 a regular guy wanted to invest every so often, $60 would go to the broker and only $40 went to investing. Just about the same time, I fell in love with a startup called CNBC.
Whats all this gotta do with Millennial? Quite a bit I say.
They have come of age when technology has revolutionized investing. That research my broker kept hidden is in the pocket of each and every willing and able millennial. Out of that $100 she has, $95 can go towards investing and the broker gets $5.
She has access to information, education, data, technology and the markets but why isn’t she investing?
Most millennial fit my buddy Eric’s profile. He was 10 yrs old when the tech bubble bust draining his family coffers. A defining moment. He graduated into the great recession. A defining moment. He is saddled with college debt and uncertain job prospects.
Despite the challenges, when it comes to investing I believe millennial have advantages over the generations before them. Just like their grandparents (the Greatest Generation) whose values were defined by the Great Depression, millennial are frugal and more conservative. The hard lessons will serve them well.
The boomers and Gen X were ushered into jobs in the era of self directed 401(k) retirement plans (REFORMS NEEDED!). The risks, responsibilities and security of retirement planning shifted from the company to the self. We have fumbled around this reality and we are just getting a handle on it, barely (grim stat on participation and overall savings). The millennial have grown up with that as their reality.
Their sheer numbers and earnings potential will influence the markets for the next 40 yrs.
The lucky few stand to inherit a great deal of wealth in one of the largest inter-generational wealth transfer from their grandparents and from their aging parents.
The greatest asset they possess is time. The power of compounding is real: as discussed by others (including Einstein). If you play it to your advantage, say have a 10 yr head start on your friends, you will invest less overall, less frantically and still be well ahead. The Turtle wins the race.
What’s a millennial to do?
Learn and learn always.
Learn the basics: financial literacy, investing, tax, and accounting. These are relevant skills that will serve you for the rest of your life. Invest your time in learning now and later you will have more time for those games and social networks.
Stock Funds are a composition, a fruit basket of stocks and they are only as good as what’s inside the basket. If you do not know what is in the basket and what each of those fruits are, you just might invest in worthless stuff because it sounded nice or because you liked the salesman. Importance of learning this stuff!
Invest. Invest Often.
Invest even if it’s in a taxable account.
You can invest for other goals like towards a down payment on a house, college fund, trip to Mongolia. It doesn’t always have to be towards that far away destination called retirement, crucial and a must as that may be.
Yesterday was a great day to start but today is better than never.
Take charge now, make mistakes early on and earn your strips. We all do. Even though I had studied the markets, when I started investing I bought into the hype, the “next” hot thing, the IPO, the Biotech, the fast and sexy, then when I got to settle down, I learned real business with proven track record wins (Thanks Mr. Warren Buffett: the Real Oracle). The Turtle wins the race. At IPO Zynga was hot, so was Twitter, but just go look up a beauty salon near you: Ulta Salon, Cosmetics & Fragrance, Inc.
If you hold Ulta, this chart is sexy! (a 5 yr chart Ulta up 256%, S&P UP 76%, Zynga down 70% and Twitter down 60% since Nov 2013 IPO)
What to invest in? Just what you know: Big themes: Do you pay your electric bill, insurance, eat cereals, drive a car, drink coffee? There is a Clorox bottle in your laundry room, an Arm & Hammer baking soda in your fridge and a can of WD40 in your garage. Start with what you know.
Not too sure? Start with a free virtual trading account. Learn the ropes, gain confidence.
Not enough to invest? That’s just an excuse. You can buy stocks in fractions of a whole. Start small, start early. $30 a week or every 2 weeks and give yourself a year. This adds up and gives you confidence to do more.
When it comes to investing there is a ton of information, misinformation and noise. Filter all that, know your goals and stick to your lane. Some people can consume a lot of data and information while others just like simple and easy. Know you. Do you!
Don’t get thrown off course by the professionals, the talking heads and the experts. Do according to your abilities and capabilities. An expert may suggest something but the risk associated with it could make for sleepless nights.
I’m not knocking on experts but their calls are just that. Do you watch sports? A commentator just calls the game but does not determine the outcome.
Engage a financial partner (planner, counselor, hopefully a for fee certified planner) who has fiduciary duty and, just as you consult your doctor once a year, schedule an annual appointment, preferably between Thanksgiving and Christmas, to review the ending year and plan for the next (and just before you over indulge and over extend yourself with Christmas shopping). You have to be an active participant in your finances and a great financial partner should bring that out of you. And always seek second opinions. If you are financially literate, which everyone should be, you will callout BS.
Investor behavior is neither logical nor rational. You will act in the same manner too. Investors act, then think, instead of the reverse. Case in point “breaking news”….. panic sell, ask questions later. We get into the markets when the going is great, when the markets are at the top, when everyone is talking about the DOW this, S&P that. We should do the opposite, get in at the bottom and ride it easy. Buy low, sell high.
Automate this
Robo-advisors and other tools are just that TOOLS to aid your investment journey. They are not a replacement on your skill, judgement and decision making. As with all other important and PRIVATE information, you as an over sharing generation, need to be mindful of who you entrust with your information. Be careful not to have too many “middlemen” as each add a fee for their service. For instance if you want a Vanguard ETF got to Vanguard direct not through a third party that adds to your costs.
Price
Most new and even seasoned investors consider the nominal price, the listed price tag, when choosing between stocks. For instance someone will consider a $3 stock before they consider a $30 stock figuring they’d buy more number of shares with a low listed price. That can be a big mistake. Consider the price tag in abstract or better yet don’t consider it at all. What should matter most is current value and future prospect. Paying $3 for something worth $1.80 is unfathomable. Paying $3 in a microcap with unproven record is risky.
Busy
Everyone is busy and overextended, I get it. We have too many “time grabbers” like Facebook, snapchat and others. Though entertaining and all, the greatest rewards go to their owners and investors. How do you wonna play that card? Spend time on them and Own their shares too?
No one should be too busy to educate and inform themselves on important matters like health and finances. That’s just irresponsible. How do you know what questions to ask if you are not informed? How do you know you are not being led to a meat cleaver if you are unaware of possible pitfalls? For the next 40 years you are facing crucial financial decisions and you should not just hand them to another person (even a spouse in case they become incapacitated and you are clueless) or a robot. You should not outsource your “I DO”
Returns
Be realistic about what Returns to expect. Investing is a marathon, not a get rich quick scheme. The long-term market returns is about 8% and much of it derived from dividends and dividend re-investments. Don’t malign those dividend paying companies. Millennial or not you still have to pay your electric, insurance and water bills to companies that are financially healthy and stable. (Somewhere along the way you will learn about REITs) As an investor expect good years and bad years and expect them to even out.
Individual stocks
Back in the dark ages I was advised that regular guys like me don’t belong in individual stocks: too risky, rather get into mutual funds. With the current state of affairs: access to markets, low broker fees, well educated and informed investors, access to research and data, the risk factors have been greatly reduced and regular guys like me do belong in individual stocks. All that said all individuals are not made the same and all stocks were not created equal. How much anyone gets involved with individual stocks depends on a lot of factors and only you can determine that, otherwise the markets will let you know. My advice the bulk of your investments Should be in low cost ETF but also include a dash of individual stocks in your investments.
Actively managed vs passive funds.
Mutual funds have been around since the 1920s and they were a great invention (lower risk) but they are showing their age: big outflows and growing. Long-term returns have not matched the market in part due to fees. In comes Mr. Bogle, Vanguard and Indexing. Enter ETF. It was the best of times! Until Wall Street started looking for ways to remain relevant. Remember that technology thing? As much as it has helped individuals, it has upended business at the Street. What’s a master of the Universe to do? Come up with confangled products that distort or screw up a straight up product. They messed up stocks as an investment vehicle by turning them into all kind of products and now they are onto ETF. What are multifactor ETF and how many more are coming? They take a great consumer thing, turn it into a speculative product, turn it into a gambling vehicle and shove it down to the consumers. They introduced us to SWAPS, CDOs among others. If these exotic products remained “for professionals by professional” we would not care but they do filter down to consumers who end up buying speculative artificial constructs rather than real assets.
All that to say, beware of what is coming out of Wall Street and keep it simple.
Investment clubs
Join or form an investment club where you can learn and teach other about investing. This serves to educate and motivate you and exposes you to different perspectives. These clubs can be online or better yet offline but beware of anyone peddling hype and misinformation. You are your best advocate especially if you are well educated and informed.
Annual reports
You are not an investor until you read one annual report. Yes it’s downright painful, piranha infested bed painful, but crucial in your journey as an investor. Annual reports have valuable tidbits of information about what the company does, how it does it and what it plans to do. You can also learn about the challenges it faces going forward. If you survive reading through one this year and learn something, going forward you will know what to look for and where, which cuts down on the time spent doing research (you just might make a habit of this). That Clorox product has been around for more than 100 years and the company annual sales of this and other products top $5B.
Investing vs. Trading
Investing is long term company ownership. You invest for value believing in the now and future value of the company. Trading is opportunistic, sometimes speculative and short term in nature. If you get into trading, you better be savvy and mindful of complex tax implications. Regular folks like me should leave the day to day, short term machination to professional trader and focus on the long game.
Debt
Resolving to be debt free and working on it is validating. Debt free life is the best life! Prepaying your debt saves you a ton on interest payments. If that is not enough positive validation, starting and growing an investment portfolio can motivate you to do more.
Life Interrupts
Be mindful of something called life. Family life, shared decisions, tragedies, divorce are all part of life’s realities. Kids do grow up, as they tend to do, so don’t short change your retirement plans by overindulging kids only to wake up at 50 and start scrambling to put together a plan. Toys are exciting and deserved but most end up forgotten, trashed or donated (moderation).
Financial Review Time
Review your investments and finances often. Don’t obsess over the day to day stock movements and if you do over time you will grow out of it. This can be once a month. Initially you will spend a great deal of time on such matters but as you gain skill and confidence you will progressively spend less time
Decision Making
Own your decisions and learn from them, good and bad ones. You will buy and hold onto a bad stock hoping it will come back to break even. Bad news do not get better with time. Don’t fall in love with a stock, its not personal just business, when its time to sell, sell. When its time to gather some profit, just pull the trigger.
