Big problems and big opportunities for millennial investors
I think being a successful investor is simple but not easy.
I think being a successful millennial investor is even more difficult. Let me explain.
Millennials have some big problems and headwinds when it comes to money:
- Some have significant amounts of student debt.
- They thrive/thirst for homeownership, which is very costly.
- Boomers remain in the job market, they are competing with Gen X; so good jobs with good incomes are hard to find and retain.
With that doom-and-gloom I believe there are also some big opportunities for millennials:
- Unlike me investing time is on your investing side; you have 20-30 years of investing before any retirement plans.
- FinTech is here! Hassle-free investing is here with firms like ModernAdvisor – to help you save more, spend less on fees and grow your portfolio in a diversified way.
- Money management costs have never been lower – ETFs are the new mutual funds but without the higher fees of active money management – ETFs can be great products for all investors.
I wanted to validate these problems and opportunities so I reached out to a millennial who is in debt but also saving and investing his way out of it. Enter Matthew.
Welcome to the blog Matthew.
Thanks for having me Mark!
Tell readers about yourself…
Well, my name is Matthew and I am in my mid 30’s. I live in a small-town east of Toronto. I have a blog called All About The Dividends which I started in February 2016. Up to this point it has been an investing blog, but soon I will be adding some personal finance posts to it as well. I am currently in the process of improving my finances and boosting my retirement income.
Matthew, may I ask what your current debt load is and how you got into it?
Sure, no problem. I wish I could tell you that I’m debt free but that is not the case. I currently have $15,600 owing on my car. My car is the only debt I have though. Last year I took out a $10,000 loan on my line of credit and used the funds to invest in my TFSA. I paid that loan off this past April.
I got into the debt for the car because at the time of purchase I had an SUV that was only a couple of years old, it was not paid for, so when I traded it in what was owing after trading it in was added onto the cost of the new car. On top of that I financed the car for 8 years to keep the payments low – not ideal. Since purchasing the car in 2014 I have changed my attitude towards personal finance. I am making it a goal to have the car paid for by the end of 2018 – four years ahead of schedule.
Good work Matthew. OK, so do you have a budget? If so, how did you create one and how do you manage it?
I don’t really have a budget. I do have two wonderful parents who thankfully allow me to still live with them which is a big help to me! I currently only have three fixed expenses: my rent to them, a car payment and a cell phone payment. With my first pay of the month I take care of the rent and car payment. With the second paycheque I also take care of the car payment (car payment is bi-weekly). Any money I have left over I pay down the car more, I put in a fun account (buy whatever I want or need), I use for an emergency fund, I use for investing (bi-weekly contributions).
So as a millennial who is in debt, what are your thoughts on emergency funds?
I think emergency funds are extremely important. You never know when your car will break down, for example. If I was asked this question a couple of years ago, I would have said having money just sit in an account doing nothing is a waste. Now I believe the total opposite. If you have a big unexpected expense you can use the emergency fund to stay out of debt and avoid paying interest on your debt.
I do have an emergency fund. At the beginning of the year I had $2,500 set aside. In January, I decided to increase it to $10,000 by the end of this year. I am very thankful for it, because in May my laptop died. A week later I found out I needed new brakes for my car. Having my emergency fund saved me from going into more debt. I wouldn’t have thought this way before.
Let’s talk about HUGE debt. What are your thoughts on home ownership? Do you want to own a home eventually? If so, why?
At this moment home ownership is unattainable for me. For the time being I have given up the thought of owning a home. This is due to my current financial situation and the price of homes. I seriously don’t know how people can afford some of the homes they are buying. I live about an hour east of Toronto and even these prices are crazy high.
I would like to own a home eventually. It would be nice to have a place to call home. I feel that home ownership is a good investment since I’ve seen property values go up (a great deal!) over time.
In my 20s I used to think life insurance was for ‘old people’. As a 30-something what’s your take on life insurance?
I think I had the same thoughts as you. I currently don’t have life insurance, I am single and without kids so I don’t feel the need for it. As I continue to educate myself on all things personal finance I may change my opinion in the future.
With the Boomers not wanting to retire yet, Gen X striving to keep things above water, and now Millennials striving to get ahead the job market is saturated – good jobs are hard to find. How are you coping?
Good jobs are hard to find especially where I live. In my area I am seeing more and more minimum wage jobs appear, and the well-paying jobs slowly disappear. With the Province of Ontario announcing that the minimum will be rising to $15 per hour (from current $11.40) that should help a lot of people.
I currently work as a full-time security guard for a local company. In an effort to increase my earnings back in January I picked up a part-time job. So at the moment I am currently working seven days a week.
At the moment I am going through the interview process for a local factory that offers good pay and benefits. Fingers crossed I get it.
I believe this is a great time to be an investor. What are your thoughts on investing? How do you invest? Where do you go to learn more?
This is certainly a good time to be an investor, we have been in a bull market now for the past 8 or 9 years. I am a dividend investor. I buy and hold stocks that pay and grow their dividends. In fact July marked my 3rd anniversary as a dividend investor. I am currently invested in 25 stocks and 1 ETF.
I love to read The Globe and Mail I believe they have a really good investor section in their paper. I also read other blogs such as yourself, Roadmap2Retire and Tawcan. I learn from what you have done.
Well, I’m not perfect Matthew but that’s great you follow. Last questions. What’s next for you? Saving more? Growing your income? Other?
I have three things planned. The first, build up my emergency fund. Second, invest more in my TFSA as I got quite a bit of contribution room left. Third, pay off my car. I really want to become debt free.
All good things Matthew, especially those three, I wish you well and thanks for being a fan of this site.
Matthew’s challenges (and opportunities) are likely no different than many other millennials – which brings me to this. Here are some thoughts about what most of us should avoid when it comes to money:
- Budget fails
Debt and budgets often go hand-in-hand. Develop a budget and keep one. The earlier in life, the better.
- Embracing debt
Ignoring debt and not understanding debt will be problematic for you. Embracing massive amounts of debt (for most people) will sink your long-term financial health.
- Ignoring investing
Don’t put off investing until your 30s (although better late than never). Investing can grow your money in a way that cash savings never will. Consider investing inside a TFSA as much as possible – it’s not just a savings account. The best time to invest was always yesterday.
Do you think Matthew’s journey is typical for most millennials? What do you make of Matthew’s three (3) focus areas going forward? What advice do you have for him and other 30-somethings?
Related reading – A savvy millennial’s journey to early retirement.
Related reading – Attention millennials – welcome to the glory age of investing (thanks to you)
Related reading – Millennials can get rich slowly (by doing this)
Thanks for reading.
Mark and Matthew,
“Build up my emergency fund” – great idea!
Perhaps paying off the car loan before investing in the TFSA might be the route to go. I don’t have any info as to the terms and conditions of the car loan so my recommendation is based purely on the fact you specifically stated you “really want to be debt free”.
Is Matthew’s journey typical for most millennials? I suspect it is.
Advice for Matthew? I have no idea what is Matthew’s educational background or career aspirations. While I hope he lands the factory job for which he was applying, I would be extremely concerned if I had a factory job in this day and age. You definitely want a skill that can’t easily be outsourced.
As far as investing goes…
Looking at the portfolio on your site, you would probably be better off sticking with low cost broad based ETFs at this stage of the game. Once you build up enough money and learn more about investing then move into individual stocks. If you are adamant you want to invest in individual securities NOW then stick with the cream of the crop in the S&P500 and the TSX60. I have absolutely no idea why you would buy some of the stuff you currently hold in your portfolio. I suspect you have been reaching for yield.
I sincerely wish you all the best and have bookmarked your site so I can follow your progress.
Thanks Charles. Agreed with the skills that can’t be outsourced. I would think a trade would be a great job right now but I don’t know of Matthew’s interests either.
As for the assets and portfolio, I too wouldn’t own some of those stocks or companies but that’s just me. High yield = higher risk of a dividend cut. I personally prefer larger blue-chip companies and other wise by a few low-cost ETFs or index invest for better longer term returns.
I think early 30s is a very good time to invest into yourself and try to make progress with your career. You need to make money first so that you can invest the money. So for younger people, while focusing on saving and investing is not bad, getting a better career might be more important? A good job also makes you feel big achievement and good for your mental health. Being an immigrate myself, I saw lots of new immigrate going to school (college or university) in their 30s and even 40s. They came out of school with above average paycheques.
“A good job also makes you feel big achievement and good for your mental health.” Certainly a good job can help May; although for millennials I suspect they are tough to find. Thanks for sharing.
Wow, the same things happened to me last winter. I’m almost 30 though so not the same age. My laptop gave up and a week later I also needed new brakes. I have an “emergency” fund of $500 for when I mess up the math of the budget, so when this happened I was just “oh no.” However, with credit cards I was able to use the billing and grace periods to scrounge up the cash from my savings portion of my next pay and scrimp a little with my spending. I also got 2% back with the card. I wasn’t really stressed, I was just trying hard not to use any of my portfolio(TFSAs are handy for having no taxable event on withdrawal), but I could if needed, Trade+2 coming next week, Which means you should be able to sell in time to pay the emergency bills.
Credit cards are fine for a short-term expense (i.e., a couple of weeks) but you’re MUCH better off using a line of credit for any emergencies, if you don’t have the cash. Meaning, why pay 20% interest on your credit card when you can pay 3-4% on your line of credit?
Also be mindful Petros that “cash back” is not really free money, it’s from interest paid by other people that can’t afford something (so they use credit card debt). Debt can be good but it can be very dangerous.
Mid 30s is Generation X, not millennial.
He seems to be responsible with his money though. Good on him.
re: “Mid 30s is Generation X, not millennial.”
From the always-correct interwebs: ‘Millennial is the name given to the generation born between 1982 and 2004.’
~35 = 1982 birth –> Millennial/Gen X cusp.
He probably associates and relates more to the friendly Millennial cohort than the disgruntled Gen Xers.
re: “…there is a thirst for home ownership and almost an entitlement.”
Which only shows that people are still falling hook, line, and sinker for the generations-old marketing scheme which is “home ownership”. Don’t people ask ‘Why?’ anymore?
re: “I feel that home ownership is a good investment since I’ve seen property values go up (a great deal!) over time.”
If you actually read all the info and articles posted on MyOwnAdvisor, you would know “home ownership” is actually a very terrible investment (think negative returns). You wanting to buy residential real estate simply because you’ve “seen property values go up (a great deal!) over time” is akin to chasing yield. It’s a bad move (think Cabbage Patch dolls).
re: “I do have two wonderful parents who thankfully allow me to still live with them which is a big help to me! I currently only have three fixed expenses: my rent to them…”
Do your parents own their house outright (no mortgage)? If so, perhaps you can make a deal to start buying their house from them in the form of your rent, kind of like a weird interest-free reverse mortgage. Better yet, have you asked them what they do with their rental income (even better — are they paying taxes on it? 😉 )?
re: “What advice do you have for him and other 30-somethings?”
Invest in yourself, perpetually.
re: “I have a blog called All About The Dividends…”
Funny how dividend investing seems to be the default setting for the PF crowd. Easy way out?
I can see by your portfolio you are already doing a bit of yield chasing (see “home ownership”). I’ve looked at many of the same players, but never pulled the trigger, so I know it’s worked out for you thus far…
Also gotta ask why, it seems, the bulk of your portfolio is in an RRSP? Taxes are not going to favour you.
Also interested in the ‘Goals’ section of your blog…would be interesting to learn more on how you approach these.
My parents do own their own home (no mortgage).
In regards to RRSP versus TFSA. I took some gambles with my TFSA when it first came out that is why the majority of my investments are in my RRSP. Over the last year and a half I have been investing more money into my TFSA, and I plan on continuing this until I max out my TFSA.
He’s right on the boarder as you know, depending upon your sources, millennials were born after 1982 to early 2000s. Age 35 = 1982.
*Sigh* on home ownership is great. I really wish people would think that through more. Again, my wife and I would have been better off renting over the last decade than buying houses. Maybe $50-$100k more “ahead”. That’s not a trivial amount of money!! I will write another article on that this fall to see if people truly understand where I am coming from; potentially with real numbers.
For Matthew given his income I would think the TFSA and only the TFSA would be good for him, not the RRSP. Unless that is maxed out given his income the RRSP is not doing to do him much good; from a tax perspective as you well know SST.
Thanks for the insight.
Regarding to home ownership, really depending on where you live, I guess. In metro Vancouver area, it makes a big difference with one’s net asset depending on when you bought, where you bought, and how many you bought properties, for families with similar income. Basically, the earlier and the more you bought, you are richer now.
I just bought a house that cost 1.4M. The owner bought this house two years ago with only 1.03M. So he made more than 300K within 2 years, while I have to spend quite more money now comparing to if I bought two years ago. Assuming he paid 20% down payment and has a mortgage at 2.44% rate. That’s more than 100% return on the capital in two years. It’s fortunate that I have a small house myself and just upside. If you don’t have any property yet, it’s hard to buy anything in current real estate market for working family.
Twice I actually almost bought a house around 1M, but didn’t buy for variance reasons two years ago. If I did buy at that time, it will make a huge difference for my net asset amount.
After some struggling, with the very high price now, I still opted out renting and still decided buying. A similar house will rent for $3500 a month. Looking at the numbers it does not make sense to buy now financially. But I do want to have a place that I can call it home and don’t need to worry about being forced to move out. With two young kids, I feel stability is quite important for me. Hopefully I will not regret about this ten years from now.
“I just bought a house that cost 1.4M. The owner bought this house two years ago with only 1.03M. So he made more than 300K within 2 years, while I have to spend quite more money now comparing to if I bought two years ago.”
Wow…that is wild. I would probably pass out before I paid that much for a house. 🙂
Crazy how big real estate returns have been in Toronto and Vancouver in particular. It’s like a lottery ticket, right time, right place, right asset.
Most (decent) 3-bed houses in Ottawa are renting close to $2,500 per month in the city. Looking at those numbers, buying is better for sure but for how long?
I fully respect you want stability for your young family. I would likely do the same. As I get older though now into my mid-40s I really feel flexibility (in houses, life, jobs) is more key to me. I could see us moving into a condo (paying that off within 5-10 years) and travelling every winter being debt-free. That would be nice. Time will tell and plans always are subject to change.
Good to hear back.
Hi, Mark, it’s weird that I cannot reply to your comment. Is there a rule how many levels the comments on comments can go?
I almost passed out when I signed the contract. The chance of buying at this time will turn out better than renting became quite small. We plan to live in this house for at least 11 years, hopefully long time holding would help a little bit.
I envy you could have the choice to move into a condo. One reason I am buying a new home is that my current home became too small for my big family. When I bought my current house, we were dink and never imagined one day I would have two children. I didn’t even think about how much a kid cost when I decided to become a mom. When I was at maternity leave with my second kid, one day I began to calculate how much I lost in salary income with my two maternity leaves. The result was a big wow, so expensive. Then I went back to work and the kids went to day care. It’s another big wow with day care fees. I thought it would be more affordable when the kids go to school. Not the case, they cost me more than $1000 every month with activities, plus after school fees, and summer camps maxed out my credit card every year. I hope I knew how expensive they are before I decided to have them…….In the other hand, they are priceless to me and I will not trading them for one billion dollars. So the feeling of having kids is really complicated. Being painful and joyful at the same time.
Shouldn’t be a rule….maybe 5 responses? I would need to check…
Well, we shall see about the condo May. Something 1,200 sq. ft. (what we are looking at) is going to cost $600k in the city. There is only two of us and two cats, so that should be enough space for us – not big but comfortable.
We thought about kids but decided against it for a few reasons. We are very happy with our choice and no looking back.
I suspect many adults don’t realize the emotional and financial commitments kids have. I know in talking to some people in particular, not my close friends mind you, knowing what they now know they wouldn’t have done it. Kinda sad when I think about that – parents who deep down don’t want to care and support their kids but feel obligated. Makes me angry in a way because I cannot imagine my parents like that with me…anyhow…I digress!
It sounds like you’ve made a decision you certainly don’t regret and would do a great deal to make your kids happy, healthy and successful – that’s great.
He’s right on the boarder J, depending upon your sources, millennials were born after 1982 to early 2000s. Age 35 = 1982. Thanks for your comment.
Interesting interview! As a millennial myself I think there is a lot of heterogeneity amongst millennials. I there’s quite a difference between the older millennials and younger. You are right though, there is a thirst for home ownership and almost an entitlement. I agree that millennials have time on their side, the earlier the better, starting to invest in your 30s is a little late IMO but better late than never.
Thanks for your comment GYM. Millennials are an interesting generation for sure, the entire range.