From a young age, my parents ingrained in me the importance of saving and investing. My dad, ever the CPA, stressed the importance of capturing those tax-free dollars in my company’s 401(k) plan, even when I could barely make ends meet in my first job out of college. For the most part, my friends also understand the value of saving and investing, as we every once in a while compare debit card savings perks when we split the bill at brunch or compare notes on the latest financial software. A recent survey finds that my fellow millennials and I are doing some things right and some things wrong when it comes to our investments.
Paved With Good Intentions
BlackRock’s latest Global Investor Pulse Survey uncovered some positive and negative truths about my generation. Let’s mix it up and begin with the good news:
Millennials are more confident about their financial futures than other generations. 65 percent of those of us surveyed said so, versus 52 percent of Gen X, 50 percent of Boomers and 59 percent of the Silent Generation.
Millennials are most likely to feel “investing is for people like me.” 48 percent of millennials answered this way, versus 45 percent of Gen X, 40 percent of Boomers and 43 percent of the Silent Generation.
Great, so we’re confident and engaged! But also found within the data is a major red flag. While our intentions are there, the survey found that millennials hold 70 percent of their savings and investments in cash. 70 percent. After first reading this myself, I had a slight bout of panic and immediately checked my own portfolio, which is only 7 percent cash. And that’s thanks in part to the article written by my colleague Heather Pelant, which convinced me to take action. To cite her Cash is Not a Strategyassertion:
Staying out of the market means missing potential rallies. We know that we’re in a volatile market environment right now, but those downs are accompanied by ups. As we millennials have a longer time horizon until retirement, staying invested for the long haul is key.
Cash doesn’t keep pace with inflation. As Russ Koesterich points out, cash typically produces lower returns than stocks or bonds, and once you invest for both inflation and taxes, average long-term rates are negative.
There are several smart ways to get cash off the sidelines, and you may want to check them out. Because no matter how old you are, you can’t win if you’re not in the game.