If you were born between the early 1980s and late 1990s, you're a millennial. And if you're a millennial, odds are you aren't investing your money in the stock market. According to a recent Harris poll, 79 percent of your generation isn't handing over hard-earned cash to Wall Street. The reasons why are varied, and not what you'd expect – only 13 percent say it's because they're paying off school debt.
The poll revealed that 76 percent of millennial women found investing confusing, and 60 percent believe the typical investor is an old, white man. About half of millennial men agreed. As a young adult, you've seen a lot of negative press about Wall Street and investors losing their money during market crashes. It can be scary. It can also be daunting to start investing if you're uninformed about how to get started.
Before you begin investing, you should arm yourself with knowledge of what you can do, how to get started, and how much money you could earn with a long-term investment.
Tip #1: Pay off Those Credit Cards
Unless you have impeccable credit, you're likely paying interest rates as high as 24 percent on your credit card debt. If you are carrying a balance of only $500 on two cards each, have an interest rate of 18 percent, and are only paying the minimum each month, you'll end up paying about $2,900 over 19 years.
You need to pay off what you owe, or the interest you're paying out will gobble up the interest you make on your investments. A good plan is to pay the minimum on your lowest-interest cards and sink your money into the card with the highest interest and get it paid off. Then work down the line until they're all cleared.
Tip #2: Ditch Your Savings Account
It's important to keep an emergency fund, of course, but a savings account isn't doing much for you. The interest you earn by keeping your money in a savings account is minimal – generally, you'll earn 0.01 to 0.06 percent from most big banks. Let's say you have $10,000 in your savings account right now, and you deposit $100 per month. After 10 years, you'll have $22,095.92. Sounds like a good deal, right? Except you contributed $22,000 yourself. Your interest only got you what's behind the comma.
Tip #3: Take a Risk
The benefit of being a millennial is that you're young and you can afford to make a risky investment. If it all comes crashing down, you'll be OK. The older you get, the harder it is to justify a big risk, because you're closing in on retirement and you need that money. On the flip side, those big risks in stocks can also potentially make you a lot of money in dividends, which you can continue to invest and make more money. Compounding is a beautiful thing indeed.
Tip #4: Just Start Investing Already
Thirty-eight percent of millennials surveyed say you need at least $1,000 to start investing, which isn't true. You can start with only $5. Granted, you won't make a fortune with micro-investing, but it isn't a huge risk to just get started. Acorns is an app that takes your spare change from a grocery trip and deposits it into an investment account; once you reach $5, the app invests the money for you. Stash is a similar app, but you get to choose the companies you invest in.
Tip #5: Never Stop Learning
The best course of action for anyone who wants to start investing is to learn everything you can about investing. You can start with a couple of websites that are chock-full of investment information, such as Motley Fool and Investopedia. Once you feel more comfortable with the ins and outs of trading, you can download an app with stock news, such as MarketWatch App, which lets you create a watchlist so you can see news related to your own investments.
Tip #6: Don't Forget About Your 401(k)
If your workplace offers to match contributions to a 401(k), you'd be crazy to not participate. It's basically free money. Generally, employers match you dollar for dollar up to 6 percent of your gross pay. If you make $50,000 and invest $3,000 into your 401(k), your employer will too. A 401(k) portfolio is made up of a variety of short- and long-term investments to manage risk appropriate to your age, and it's adjusted as you get closer to retirement.
You have many options for investment, but the most important takeaway from this is that you need to start investing for your future. Don't let your money just sit in the bank while inflation rates rise – make your money work for you. If you take the risks now, you'll get the most return on your investment, so you can retire later in life with peace of mind.