Young people have always faced an array of financial challenges. Today’s Millennials, however, have even more complications to deal with than their predecessors did. Economic uncertainty, a changing job market, and crushing student loans are among the issues that Millennials need to juggle. Beyond this, a growing tendency among young people to assert independence from their parents is forcing them to think more broadly about how to save money.
Are there ways for Millennials to guarantee their financial security? Well, they definitely have more options than many of them probably realize. The key lies in the diversification of investments. This article will lay out several ways that millennials can diversify their investment portfolios and begin the process of saving early enough that they won’t have to worry about savings when times get tough.
Understanding the Generational Financial Landscape
The current generation of young people face particular challenges with regard to saving money, even greater ones than their parents did. Among them are the following:
- Student loan debt. College tuition has been increasing consistently for decades, and at this point, 15 million millennials are facing huge student loan debt. In fact, the average debt for a millennial student is over $33,000. Considering that recent college graduates generally make fairly low salaries anyway, this is a great burden to carry.
- The rising cost of real estate. Buying a house is always a big undertaking, but prices have skyrocketed in recent years, making it increasingly difficult for the majority of potential home buyers.
- Instability of Social Security. Social Security alone cannot be relied on as a source of retirement funding. Payments are insufficient, and there is increasing uncertainty about whether it will even be solvent by the time today’s Millennials retire.
These are just a few of the factors complicating the situation for Millennials. Inflation, the rising cost of rent, uncertainty in the job market, and other factors also contribute to the uncertain situation that they face.
The Importance of Investment Diversification
For all these reasons, it is critical that millennials find effective ways to create diversified investment portfolios. Not only will this help them save for retirement, but they can boost their overall savings, and better prepare themselves for any unexpected problems.
So, what types of things should you be investing in?
- IRAs. It’s never too early to start thinking about an IRA. They can be a reliable complement to Social Security in providing you with additional retirement funds. Investing in a gold IRA in particular is a wise choice because of the high level of stability that gold and other precious medals have. If the economy becomes unstable, precious metals retain their value.
- Stocks, mutual funds, and ETFs. If you are young and have some money to put into the stock market, it is a good idea to do it early so that the money has an opportunity to grow. You should also consider the option of mutual funds or ETFs, which will allow you to combine different stocks in a single package. Look for a variety of both high-capacity and stable stocks, such as core stocks. The combination should give you both growth potential, and serve as a hedge against market volatility if the economy has a downturn.
- Rental real estate. If you’re smart about it, buying and renting out property can be a great way to make additional income. You need to really do your research, though, and determine the amount of work that will go into both buying and renting. It isn’t simply a matter of sitting back and watching the money come in.
Smart Savings Hacks for Millennials
In addition to investing, another thing that you can do is learn how to save money like an expert. It is very easy to get caught up in a cycle of extravagant spending. There are several concrete steps that you can take to control this:
- Create automated savings. Fortunately, we are now living in an age where many things can be automated. You can set up a bank account in such a way that a certain amount of money automatically gets put aside each month. A similar idea is creating different accounts for different purposes.
- Pay off your bills. This might sound like a no-brainer, but there are a lot of people who don’t do it because interest payments can look minimal at first glance. In reality, though, they can really add up. Do your best to pay off debts with high interest rates, rather than simply making minimum payments. You’ll be surprised at the amount you save.
- Track every expense. Another thing that can add up quickly is small expenses. If you make a concerted effort to track every expense that you make, you will stop overspending and have control over where your money is going. This way you can start to eliminate things that you don’t really need.
Risks and Considerations
Every savings and investment plan comes with a degree of risk. Keep in mind the following points to help you maintain control over your finances:
- Stay aware. You need to really stay on top of things and watch your money in order to maintain an accurate picture of where you really stand. This takes time and effort, so putting it into your calendar and automating notifications will be to your benefit.
- Be conscious of changes in the market. Conditions can change at any time. If you purchase stocks or other kinds of assets, be sure to check their value on a regular basis.
- Be wary of “get rich quick” schemes. If you hear about a stock option or other type of investment that sounds really appealing and your friends think it will lead to quick growth, be careful. It’s possible that a new IPO could lead to something great, but more often than not these “miracle investments” are doomed to fail. Slow and steady usually wins the race.
Making and saving money is always a tricky process. It is particularly challenging for today’s Millennials, as they have circumstances to deal with that are even more complicated than the generations that preceded them. If you’re a Millennial and starting to think about how to save, do your research on what the wisest options are these days. You can also talk to a financial advisor. And remember, creating savings is a continuous process that takes a lifetime of effort, so it’s good to get in the habit of watching your money early in life.
James Miller is a Senior Content Writer at McGruff.com. He has a background in investing and has spent most of his career in the financial industry. He can trace his family tree back to the California Gold Rush when his ancestors risked it all to make it big in the West. He feels like he’s following in their footsteps as he strives to make sense of today’s gold market.