Investing for Millennials – Three Keys to Keep in Mind
1. Market timing is a losing formula
You cannot time markets. This is very important. Waiting for the right time to buy or sell is the realm of day traders. In other words, if you think you’ll get ahead by picking the right day to start investing, chances are there will always be a better day. Certain investments are attractive because of brand popularity or hype, but are often bad investment choices for the investor. It is a big temptation to “time” the market or to buy on hunch or the news. What’s the alternative?
2. The magic of dollar cost averaging
Start by automatically putting away a set amount every month, even if it’s small, and be consistent. This is called dollar cost averaging. You’d be surprised how far $100 per month goes when invested appropriately and investment earnings grow over time. Markets may be volatile, but if you’re in it for the long haul the key is to be consistent. This is especially true in market “corrections” and prices go down. Markets are going to do what they do – you just need to stay the course.
If you are investing a certain amount monthly, then over the course of the year you have 12 different purchase prices. Buying this way, rather than in a lump sum, mitigates the risk that you might have invested that lump sum at a market high. Hence the term: dollar cost averaging.
3. Set a Goal to Achieve with Your Money
Ask yourself, “What are my plans for this money and when will I need it?” Answering this will determine what kind of account(s) you open and what investments you choose. For example, is this money for a home purchase, travel abroad, or a new car? If so, you don’t want to put this in an Individual Retirement Account (IRA). There are penalties for IRA withdrawals before age 59½. You’re better off opening up a savings account at the bank for short-term goals.
For non-retirement financial goals, open an individual account in your name so that you have access to funds without a penalty. For short term goals, consider avoiding aggressive investments. If you need to access funds in the near future, you don’t want to sell at a loss.
What’s your financial plan?
These are good starting points. Do your own research to see what makes sense for you. Get started and find someone to keep you accountable. Check out Jonathan’s piece on Financial Planning for Millennials. You’ll find information about working with CameronDowning in our Frequently Asked Questions.
¹ business.time.com (2013). Note: More recent estimates suggest the intergenerational wealth transfer could reach $68–$84 trillion over the next two decades.
