Whilst young people have always seen investing as something that can ‘wait until they’re older’, the current generation of Millenials may be taking this to the extreme. According to research by Bank Rate, only 26 percent of young people under 30-years-old are investing in stocks, compared to 58 percent of Baby Boomers. So why should Millenials be starting to invest now?
It’s easier than ever to get started with investing
Amongst those who don’t own stocks, 21 percent cited lack of investing know-how as the reason. However, a new wave of ‘robo-advisors’ have set out to change this, making investing simple and easy for all – with no prior experience needed.
It is estimated that the robo-advice market in the UK currently accounts for about £140 million of customers’ assets, and is set to rise fast. What’s more, robo-advisors – such as Nutmeg and Wealthify – will appeal to Millenials’ dislike of spending money; most robo-advisors offer advice and financial solutions at a charge of less than 1 percent, much lower than the standard 3 percent charged by most advisory services.
Patrick O’Shaughnessy, a portfolio manager at O’Shaughnessy Asset Management, agrees with this approach:
“Make it all automatic and check your accounts as infrequently as possible,” he told Business Insider.
“Check out the services offered by Wealthfront, Acorns, Liftoff, and Vanguard that automate the entire investment process. The less involved you are, the better. If everything happens behind the scenes, you’ll be less tempted to make short-term (and short-sighted) changes to your portfolio. You’ll building wealth slowly, over the long term – which is the way it should be.”
The earlier you start, the better the reward
John Salter, associate professor of financial planning at Texas Tech University, has warned that young people who don’t invest in equities early are set to have “a lot less money later on”.
Only 26 percent of adults under 30 have said they own stock – which could have a big effect on their investment future. The sooner your money starts generating interest or profits, the more you will have as you age. Interest or dividend payments can be re-invested, increasing the stash you have tucked away.
As Albert Einstein, is quoted to have said, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.”
It could be more productive than saving
Interest rates are currently at record lows, meaning that just keeping money in a bank or an ISA won’t make you a millionaire.
interest rates have been slashed on most ISAs to reflect the low base rate set by the Bank of England. Earlier this year interest rates at Natwest were cut to minimal levels; those with savings between £1 and £24,999 will now see rates fall from 0.25 percent to just 0.01 percent, the equivalent to gaining £1 interest on every £10,000 in savings.
In fact, Natwest was one of the later banks to cut interest rates. At the time of their announcement, Barclays had already cut their Everyday Saver down to 0.25 percent and Santander had committed cut their Everyday Saver rate down to 0.1 percent in November.
What’s more, given the current uncertainty over the UK’s economic future, interest rates may not have hit rock bottom yet. Alongside cutting rates, Natwest warned that it may be necessary to take interest rates into negative territory – meaning Millenials would be effectively paying to keep their money in a bank.