Millennials: It’s Time to Get Serious About Investing

Millennials, secure your retirement with smart investments in ETFs such as the iShares S&P TSX 60 Index Fund (TSX:XIU) and iShares S&P TSX Capped Cmpst Indx Fnd (TSX:XIC).

| More on:

The stats are in, and they’re alarming.

A 2016 study said some 80% of millennials aren’t putting their money in the stock market, choosing instead to stick their cash in safer assets like high-yield savings accounts, GICs, or real estate.

Simply put, the average millennial is scared of stocks. Most still vividly remember the 2008-09 financial crisis, which happened right when they were beginning to think seriously about investing. This alone made many younger folks swear off the market completely and limit their investing universe to instruments that offered guaranteed returns.

As much as baby boomers want to deny it, there’s little doubt that it’s much tougher for the average young person to save versus 20 or 30 years ago. It used to be very possible to get a good job right out of high school. These days, even college graduates are having a tough time finding steady work. Many have turned to freelancing and other contract work, which is hardly secure employment.

Millennials don’t just have student loans to deal with either. Real estate is crazy expensive these days. Social media makes saving extra hard. Who wants to scrimp and save when your feed is filled with your friends laughing it up on a beach somewhere?

And then there are pensions. Baby boomers could largely count on their employer taking care of them in retirement. Millennials who don’t work for the government can barely convince their employers to contribute a little cash to their RRSPs.

Simply put, it does kind of stink to be a young person starting out. This is exactly why you need to seize the opportunity presented to you today.

Pour every nickel into the stock market

One thing has definitely improved over the last 30 years: it’s now incredibly easy for the average person to intelligently invest in stocks.

The only passive-investing option available in 1985 was a mutual fund. Back then, mutual funds were an even crummier deal than they are today. Ongoing management fees often exceeded 3% per year, while investors who had the audacity to take their cash out after only a year or two were dinged with massive deferred sales charges. Imagine having to pay a 7% penalty just to access your own money!

Things are much better today. Anyone with an online brokerage account can cheaply buy and sell exchange-traded funds, which have all the diversification benefits without the outrageous fees. The iShares S&P TSX 60 Index Fund (TSX:XIU) gives investors a portfolio of Canada’s 60 largest companies for a management fee of just 0.18%. You’ll pay just 18 cents a year in management fees for every $100 invested.

There’s another very good reason to get into stocks today: opportunity costs.

Simply put, the average millennial can’t afford to put off investing. They must get their money to work now and let compounding do its magic.

Say five years ago you managed to scrape together $10,000 and invest it in the iShares S&P TSX Capped Cmpst Indx Fnd (TSX:XIC), which tracks the TSX Composite, Canada’s benchmark stock index. That investment today would be worth $14,817 — an 8.18% annual return. A similar investment earning 1.5% in a GIC would now be worth $10,772.

Over 40 years, $10,000 invested earning 8.18% annually ends up growing into a nest egg worth $232,209. An investment earning 1.5% a year turns into $18,140.

I won’t sugarcoat it. Stocks won’t just go up 8.18% a year. Those returns will the lumpy, meaning they might decrease 20% one year and then go up 30% the next. It won’t be an entirely smooth ride. But as long as you don’t panic and sell at the bottom, it’ll be fine.

The bottom line

Millennials, pay attention. You can’t afford to not buy stocks. Without the excess returns generated by equities, most of you won’t be able to afford to retire.

The time to invest is now. Compound interest truly is a miracle, but only if you give it ample time to work. Every year you avoid investing is just robbing from your future self. So, put all the money you can to work today. You’ll thank yourself later.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Stocks for Beginners

consider the options
Stocks for Beginners

3 Recession-Resistant Stocks to Buy Right Now

Are you worried about a recession? Here are three recession-resistant stocks that can help you ride out the storm.

Read more »

TSX Today
Stocks for Beginners

TSX Today: What to Watch for in Stocks on Wednesday, September 28

Growing concerns about slowing global economic growth could keep TSX stocks volatile in the near term.

Read more »

A golden egg in a nest
Dividend Stocks

How to Turn $5 Into $50,000 for Retirement

Can you invest in your retirement goals even in this volatile market? The answer is yes, and an investment amount…

Read more »

Glass piggy bank
Dividend Stocks

Compound Interest: 3 Dividend Stocks That Can Make You Rich

If you're looking to maximize the incredible powers of compound interest while investing for the long haul, here are three…

Read more »

money cash dividends
Stocks for Beginners

New Investors: The 2 Best Options to Earn Regular Passive Income

The stock market is heading into a new downturn, allowing investors to buy quality stocks for a bargain. Here are…

Read more »

financial freedom sign
Stocks for Beginners

1 U.S. Stock to Buy That Could Make You a Millionaire

Keep investing in this gloomy market in great stocks like Mastercard to quicken your path to become a millionaire!

Read more »

Growth from coins
Dividend Stocks

My 3 Favourite TSX Dividend Stocks Right Now

As market volatility escalates, here are three top dividend stocks that provide steady passive income to hold for the long-term.

Read more »

Caution, careful
Stocks for Beginners

NIO Stock: Here’s Why I Won’t Touch it With a 10-Foot Pole Right Now

Here are the key reasons why I expect NIO's stock price to fall further.

Read more »