Attention Millennials – Here is your game plan for retirement

A few months ago I got an email from a reader as a follow-up to this post:

You make a lot of great points in your previous post–I especially like how you said to own the banks themselves instead of mutual funds. Timing the market can also be a pitfall for eager first-time investors, so I’m glad you included the second and third bullet points as well. For the new post, I’d love to hear about how you learned this advice. Was it through making financial mistakes and correcting them, watching others make them, or just thinking logically? Essentially, if you could go back to your 20s, what would you do differently?

Thanks for all the questions.  I always find it interesting to hear from readers what they take away from my articles but also what they want to read more of.  Let’s dig into some answers to these questions…

On timing the market…

I guess I learned from my own experiences in my 20s, when I first got serious about investing using big bank mutual funds at the time, that money in the market that stays in the market tends to make money. I found the longer I held those mutual funds the more my portfolio value grew.  What I didn’t realize in my 20s was the financial haircut I was taking from owning those big bank mutual funds (via fund fees) over many years.

This is why I left the mutual fund industry.  Have a read.  If you own mutual funds now, while there some good products on the market, some of them charge horrific fees so the punch line is this:  high fees kill portfolios.

My advice to Millennials?  Ask about the money management fees associated with the financial products you own and seriously question if you’re getting value for money.

On making financial mistakes…

You don’t learn in life unless you make a few mistakes, this is my thesis at least, and I’ve made my share.  The key is to take some time to reflect as to learn from your mistakes so you don’t repeat them.  Easier said than done I know…

When it comes to personal finance and investing I’ve learned over time to challenge my assumptions, take time to reflect and question if I have enough information to make a good decision.  You don’t know what you don’t know so I think it’s important to assume you don’t know as much as you think you do.  Take time to ask questions, read books, read blogs, do the math and strive to find out more before making any big financial decision.  For example, don’t assume home ownership is better than renting.  That could be true for some people but not for you.  Don’t assume that all financial institutions are always after your best interests – these businesses are in the BIG business of making money for shareholders and that money might come from you.

You’re never going to get things right all the time but if you can avoid making major financial mistakes with loans, cars and houses you’re probably already on your to some level of financial wealth.

On what I’d do differently…my advice to Millennials

I don’t have enough white space on this page to write about all my mistakes thus far so I’ll share three below that should help most Millennials today and as they get older:

1. Don’t be in such a rush. You’ll find that with time comes experience and with experience comes maturity.  How you see the world today is definitely not how you’ll view things a few years from now.  When it comes to big financial decisions, especially home ownership, simply don’t rush them.  There is no rush and you’re not missing out.
2. Pay yourself first and don’t stop, ever. I’m not saying cut to back on coffee or tea or other small pleasures in life if you don’t want to.  What I’m saying is pay yourself first, $25, $50 or even $100 per week and never stop.  Your savings rate will be one of the biggest factors in determining your financial success regardless if this money is in cash, a mutual fund, an Exchange Traded Fund or a stock.  Just save where you can and when you can and don’t touch the money.  Your future self will thank you.
3. Invest in you. Get a degree.  Work in a trade.  Try to educate yourself and prepare yourself for a job that’s in demand, keep learning and never stop.  I’m finishing up my second degree this year.  I’m even tempted to change careers eventually – maybe work in the financial industry as a Certified Financial Planner because I’m passionate about personal finance and this job should stay in demand.  We’ll see what I do but I know I need to keep learning and challenging myself, by investing in me.  I think you should consider doing the same.

Attention Millennials – that’s your game plan for retirement.  These things will help you now and for years into the future. 

Thanks for the questions folks.  Keep them coming.