Stock Investing is for “Old White Men”!
Hello everyone! I appreciate you stopping by The Green Swan. Today I want to talk about why stock investing is not only for “old white men”, but also for the millennial generation…women and men alike!
Just like many of my readers, I am part of the millennial generation. I found it disappointing when I heard 4 out of 5 millennials aren’t invested in the stock market, according to a recent Harris Poll.
Why? Well 40% say it is because they feel they don’t have enough money and 34% say they don’t know how. These are very fixable issues so let’s tackle these head on!
Excuses Are Like Belly-Buttons, Everyone Has One
First, you feel like you don’t have enough money…then I feel like you should start eating a few more bologna sandwiches and ramen noodles! Seriously, get over your feelings and figure it out. It’s your future we are talking about! Take control and ownership.
What can you do to get over your feelings? For starters, set up an automatic transfer to a savings account and automatic deductions from your paycheck into your employer 401(k) account. If you don’t see the money, you won’t miss the money. And you will adapt and learn to get by on less. It’s called living a frugal life. Check out my Four Frugal Life Lessons if you need more help.
Plus, remember that everyone has to start small. Everyone (except trust fund babies and lottery winners) starts at square one with $0 to their name. But starting early, as soon as you can with as much as you can, makes a huge difference.
Secondly, you don’t know how to invest in the stock market. I understand, it is complicated and there are a million different ways to go about investing and a million different things to invest in. It is complicated, especially if you don’t have a finance background.
But don’t let that be your crutch! Any action is better than inaction. Don’t let paralysis by analysis kick in. Start somewhere, try not to do anything too stupid, learn from mistakes, adapt to your objectives and changing circumstances and START BUILDING WEALTH!
When I first started working after college one of my co-workers taught me a new acronym, K.I.S.S., or Keep It Simple Stupid…I tried not to take offense to this and I hope you don’t either :). This acronym can be applied to almost anything, so why not with investing. To start out investing, let’s just keep it simple. I have two words for you, Index Funds. I’ll get into this more later.
Not investing in the stock market is a major, major mistake! I would chalk this up to not properly judging your risk. Don’t fret; many investors don’t judge risk correctly. But as millennials, with long investing time horizons before retirement, it is a failure to take on too little risk! Yes, you heard me right, now is the time to take on risk!
I know we all experienced the Great Recession which definitely had a negative impact on all our lives in one way or another (watching our parents investments crater, our investments crater, or our job prospects crater, etc.). And yes, you may be scared there will be another one coming around the corner. But like I said before, get over your emotions! Investing is not a place for your feelings, it is a place for sound and rational decision making.
Don’t believe me that the stock market is the place to put your money? For me, it is the only place to Invest to Win, an article in which I make a sound, rational and compelling argument for it (aren’t I such a braggart!). This is especially true for millennials with long investing horizons.
Ways to Invest
Is There an App for That?
We are the millennial generation so I might as well start by talking about some investing apps. They are out there (including Stash and Robinhood) and they are good for some folks. However, full transparency, I don’t recommend them and they aren’t for me!
Stash for example, allows you to start investing with as little as $5. That is great, but who invests just $5 at a time? I have a lot of issues with this idea, one of which is the $1 flat monthly fee Stash charges. This means if you invest only $5 to begin with that your money is gone in five months because of fees.
I could do a more robust review of these apps, but I’ll save that for another day. Bottom line, there are better options out there.
Like a Financial Advisor…?
Yes, maybe a financial advisor is a better option, but still not the best if you ask me. Just like many millennials, I get turned off the lack of fiduciary responsibility. Do they really look out for my best interests, or do they just want to sign me up and charge me fees? I’m not really sure so I have actually never used one.
The average age of a financial advisor is 55 and there are more financial advisors over 70 than under 30! No wonder 60% of millennial women say they think the typical investor is an “old white man” (per the poll mentioned above)!
Self-Directed 401(k) and IRA
The best option for me has been a self-direct 401(k) and IRA. We are millennials after all; strong, independent, go-getters and over-achievers! Just remember to K.I.S.S.
If available, start by opening a 401(k) plan through your employer and set an initial goal to contribute enough to maximize your employers match (free money they will contribute to your account!). Eventually, you should have a long-term goal to maximize your annual contribution ($18,000 in 2016).
The next thing I did was open an IRA brokerage account. My first IRA brokerage account was through Vanguard, not a bad option, but I quickly realized that they charge a $35 transaction fee every time I made a purchase. That’s steep! While they have good index funds, I’m not a huge fan of their brokerage platform. I eventually transferred my money out.
I’d strongly recommend a place like Firstrade to open an IRA brokerage account. And if Vanguard index funds are your thing, you can still buy their funds through a Firstrade account (along with most other fund families). Your first 100 trades are free and transaction fees thereafter are under $7! If you are like me who doesn’t actively “trade”, you’ll only make a few transactions per year. Plus, Firstrade offers free access to research reports from Morningstar and others as well as additional education resources.
While My Investment Portfolio is a bit over-complicated, it doesn’t need to be for most folks. Simple, low cost index funds such as VTSMX, VFINX, NAESX, and VGTSX can provide adequate diversification and keep your costs low. After opening an IRA with Firstrade, these funds can be purchased directly through your account. Low cost, low maintenance, low hassle.
While you may not find Vanguard index funds in your employer sponsored 401(k) plan, you can likely find similar index funds. As long as the index funds in your 401(k) track the same index (like the S&P 500), performance should track substantially similar to the comparable Vanguard index fund.
Investing in the stock market may not be for everyone, but I would argue it should be a major part of every millennials’ investment portfolio. While I am disappointed that more millennials are not actively invested in the stock market, I can understand their concerns and I hope that I have addressed some of those today.
Let me know your thoughts in the comments below. Do you invest in the stock market? Why, or why not? What is keeping you from investing in the stock market? Are you not an “old white man”…?
Thanks for taking a look!
The Green Swan
Work Harder, Work Smarter, Retire Earlier and Find Your Beach
Disclaimer: Please reference my Disclosures page. This post is for informational purposes only and is not to be construed as financial advice. If you need help with investing or financial decisions, please consult a financial professional.