10 Investment Tips for Millennials

Millennials are known for being a risk taking generation. So why is it that Americans aged between 21 and 36 are the most financially conservative group since the Great Depression? That’s according to a study published by UBS.

Believe it or not, millennials have two big advantages over other investors – firstly, time and secondly, future earnings. If you start early, diversify assets, do the research, and invest in growth sectors, you’d be in a pretty good position.

Then, when you add time to the mix, that’s to say investing over a period of time, you’ll benefit from compound interest and long-term gains. Putting you in a very good position.

Before you get started on your investment journey, we’ve rounded up a list of the top ten investment tips.

1. Think long-term

You should be aiming for long-term investments. In return you’ll pay fewer fees, get more tax advantages, and receive more long-term profits. What’s not to love?!

Still not convinced? We have yet to mention the Holy Grail of trading strategies: compounding. In other words, reinvesting your profit over time to make even more profit. Also, long term investments aren’t subject to the whims of the short-term market.

As world-leading investor Warren Buffet said:

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

2. Choose stocks over bonds

While millennials tend to prefer safer investments, like bonds or traditional savings accounts, you’ll get a much lower rate of return. Historically, stocks have outperformed bonds and money market accounts.

Diversifying your portfolio to include a mix of stocks and ETFs means you’re assuming more risk, but you’re more likely to get higher returns.

However, we are not saying you should scrap bonds altogether. They’re a great source of steady income, even during a stock market crash.

3. Don’t put all your eggs in one basket

You should always build a diversified portfolio across different companies, industries and asset classes (i.e stocks and bonds).

Diversification reduces company-specific risk and balances out the inevitable losses. For example, if you have a diversified portfolio of only a tech company, any drop in its price will have a noticeable impact on the value of your portfolio.

If, however, you offset the stock with some other companies in different industries, any decline across either industry has a relatively small impact on your broader portfolio.

4. Ignore what everyone else is doing

Don’t be a sheep, think for yourself. Do your research. Learn the fundamentals of the company, its financial statements, read the news and press releases etc. The key strategy here is to make informed decisions.

5. Find your inner zen

We’re not saying you should meditate, although why not give it a go?!

Instead, we suggest blocking out the noise. There are plenty of conflicting opinions, making it overwhelming and difficult to decide where to invest.

Before making a decision, ask yourself if what is being said about a company will affect its ability to deliver on profit expectations/forecasts, or if it will stop customers from using the company’s services. If the answer to either question is no, it’s just noise.

6. Don’t panic over small movements

Remember, investing is like a rowing a small boat in choppy waters. You’re rocked back and forth as you navigate the market . Stock prices are even more volatile in the short term, so you may find yourself swimming the rest of the way!

What really makes a good investment is one that you believe will go up in value over the long term, that's basically how value investing works.

Don’t get caught up in the vicious game of active traders. Just be confident in the quality of your investments and you’ll make profit in the long run.

7. Think in terms of buying businesses

Because that’s really what you’re doing. A stock is a slice of ownership in a business, so you should evaluate investments as if you were buying the whole business.

It shouldn’t matter to you what happens in the next month or two, because you are going to be part-owner of this business for the foreseeable future.

8. You don’t need thousands to invest

Are you one of the 38% of millennials who think you need at least $1,000 to start investing? There is no such thing as a minimum amount.

Of course you’ll get lower returns if you start with $1 instead of $1000, but you’ll be one step ahead of where you started. Why not try investing in fractional shares?

9. Invest in Index Funds

Index Funds, such as the S&P 500 or the DJIA, allow you to diversify your portfolio while avoiding the risk of picking individual stocks.

You’ll pay less investment-related taxes on these too, since they need little trading. There’s also proof that index funds have lower management fees and lower expense ratios.

10. Inflation is your number one enemy

Have you thought about why something’s suddenly more expensive? The answer is simple – inflation.

Inflation increases the money supply (more dollars are printed). The knock-on effect being that the price of everything goes up, and the dollar is worth less.

So if you are not investing your money, you’re effectively getting poorer every day. The only way to protect yourself from inflation is by investing. Whether it’s in stocks, bonds, real estate, or precious metals. Over to you!

The takeaway

Start small, educate yourself before investing, think about long-term profit instead of short-run gains, and don’t believe everything you hear. Oh and definitely don’t think you’re too young to start.

Take advantage of the time you have and start earning interest on your interest, otherwise known as compounding.