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Retirement Planning > Saving for Retirement

A 4-step investment plan for millennials

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Baby boomers and Generation X have long been targets of the financial services industry. But the up and coming millennial generation is right behind.

This year, the millennial generation, at 75.3 million strong, is projected to surpass the baby boom generation (74.9 million) as the nation’s largest living generation, according to population projections from the U.S. Census Bureau.

Who are they? Millennials are generally classified as people born from 1980 to 2000.

Millennials have been unfairly stereotyped by the mainstream media as slackers, stock market skeptics, and too spooked to invest in financial markets.

To win the business and trust of millennials, it’s crucial for financial advisors to understand their needs, mindset, and to communicate in a way they can understand.

Let’s examine four steps that advisors can use with millennials to help craft a winning investment strategy.


Step 1: Pay yourself first.

A common excuse for not saving and investing that millennials sometimes use is the erroneous argument that “I want to pay off my student loans and other debt before I start saving.”

Why doesn’t that logic hold up? Because eventually student debt may someday be replaced by other debt like a mortgage. And if millennials train themselves to always delay the discipline of saving and investing because they’re in debt, they’ll never get ahead.

Regardless of how much debt a millennial has amassed, they should be saving and investing a portion of their income, however tiny that income may be. What matters most is paying yourself first, starting right now, without letup over the coming decades.


Step 2: Build on a strong foundation.

After millennials have made the grown-up decision to save money, the next question becomes where to invest. The logical place to start is on a solid foundation of low-cost and diversified funds that hit the four major asset classes: stocks, bonds, real estate and commodities.

Some of the low-cost index ETFs that are outstanding portfolio building blocks include the Schwab U.S. Broad Market ETF (SCHB), Vanguard FTSE Developed Markets ETF (VEA), Vanguard FTSE Emerging Markets ETF (VWO), Vanguard Total Bond Market ETF (BND), GreenHaven Continuous Commodity Fund (GCC) and the SPDR DJ Wilshire Global Real Estate ETF (RWO).

See also: Millennials are not so different from gen x, boomers


Step 3: Start a retirement plan now!

Millennials that want to get ahead financially should start their own self-directed IRA or participate in their company 401(k) plan. Not only will this strategy reduce current taxes, but it will help to maximize long-term savings. Many companies also offer a 401(k) match, which can accelerate retirement savings even further.

The same investment model for building on a strong foundation serves as a blueprint for millennials when they enroll in their company’s 401(k) plan. Stick with diversified funds and low-cost funds. 


Step 4: Stay disciplined.

It’s important for advisors to coach millennials on the right behavior. Help them understand that volatile markets, an economic recession, the Federal Reserve’s next move, and all of the daily happenings that none of us control are not the enemy. We are the enemy, and that’s why it’s so crucial to avoid counterproductive emotional behavior.

See also: These are the 7 steps Dave Ramsey followers really need

Millennials need to take responsibility for their own financial results, good or bad. And unless they commit to a disciplined savings habit, they’ll always be like the masses, scrapping to get by.

Finally, remind millennials that being young doesn’t give them a license to be ill-informed or lazy about their personal finances. With just a little bit of effort, discipline and a mature view of money, you can help them succeed!

Ron DeLegge is founder and chief portfolio strategist at ETFguide. Join his next monthly Portfolio Workshop for financial advisors. Attendance is free. 


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