Hold on to that thought for a while.The Deloitte Global Millennial Survey 2020 highlighted some interesting views on the financial status of millennials. Globally, millennials before the pandemic said they were saving or investing almost 40% of their disposable incomes. 3 in 4 millennials say they actively manage and budget their monthly income to track their expenses and 62% had set financial goals for the next 5 years.
As a generation, that lived through the distress caused by the 2008 recession and are in the midst of yet another economic downturn, it is but natural for them to develop the instinct to prudently save for the unpredictable future. While the topic of savings tops the charts in these precarious times, it is financial prudence that can be a stress reliever. In the survey, more than 50% of millennials have shared the fact that long-term finances are the top cause of their stress. They fear the sudden loss of income and outliving their contingency or retirement funds in the process. So while prudence in saving has been ticked off the chart, it is the manner in investing that is yet to be set right.
Traits Vs. Aspirations
Financial freedom is achievable, all it takes is ensuring you have a road map and you stick to it. A combination of persistence and aspirations play a large role in wealth creation. What tends to be hurdles are our traits. Let’s take an example of setting a goal of retiring early in life. Say you are 30 years old, saving 30% of your income each month and intend to retire by the age of 45, but the only hitch is you find it difficult to stick to one job and keep switching employers ever so often. The in-between job periods are causing breaks in your income and thus affecting your savings, pushing away the accrual of your retirement funds, and the D-day further away.
Traits like splurging on lifestyle expenses or gadgets beyond your income capacity, overuse of credit cards, and more affect your saving capacity and throw you off track on your journey to financial freedom. Like any other life-goal be it education, career, or buying a home there needs to be a set plan to achieve it. So it is with investing, if the goals are your destination then financial planning is the roadmap.
This is a number game; there are two numbers one must have in mind while investing. One is the time horizon: How long do you have to invest? And two, what is the amount you need? Once these two figures are fixed to a specific goal, that’s when the purpose of investing becomes crystal clear, and achieving it is made possible.
The right questions to be asked at this point are:
- What are your dreams and how can they be quantified into financial goals?
- What is your current financial status and what will it take to safeguard your current expenses(emergency fund/insurances) and achieve your future set goals?
Millennials are known to be drawn to the SIP culture and seem to prefer liquid or insta redemption funds. This could be attributed to goal-less planning or investments made in lump-sums as a last-minute aid to tax savings.
Hasty investing without a clear understanding of the instrument, its risks, and past performance is never fruitful and can lead to unnecessary losses. While investing, besides fixating on a goal, an investor must consider the risk factor involved and his behavioural biases if any.
For short term horizons, an investor could pick low-risk assets like corporate bonds or short-term debt funds. Goals that have a medium tenure can be parked in moderately risked instruments like conservative hybrid funds or equity savings fund. Long-term goals can be invested in high-risk funds, under ELSS, Large cap, mid cap, or small cap funds. Investors with high-risk appetite may consider stocks or equity funds to accumulate their wealth. Cautious investors with low-risk appetites could opt for debt funds or traditional instruments like gold, FDs, PPF, etc.
Coming back to where we begin: It’s not about timing the market, but time in the market.
As a younger investor, you have the advantage of time. Even seasoned investors over the years have failed to master timing the market and submit to the fact that it is wiser to invest with long-term horizons in mind to benefit from the power of compounding. To be favoured by the Gods of compounding one must begin investing at an early age. No matter how small an investment you may begin with but persistence and time alone can prove its worth.
Even as a do-it-yourself generation with tons of information at hand, millennials continue to reach out to advisors for their analytical investment advice. Whatever route you choose to invest in, begin today. Rationalize your spending and gradually grow your corpus. Money parked in savings accounts is vulnerable to rising inflation. The same invested in stock markets can gain and compound over the years.