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Millennial Money:
Smart Strategies for
Young Investors
Compared to earlier generations, millennials feel more optimistic
about their financial future—and for good reason. Despite doubts
about Social Security, heavy student loan debt and stiff competition
for jobs, millennials have several of the key qualities any long-term
investor needs to be successful.
“As the most
educated generation,
millennials will
have higher lifetime
earnings and a
greater ability
to save.”
– Katherine Roy, CFP,
Chief Retirement
Strategist, J.P. Morgan
hh They’re natural savers.
According to Chase research, the average millennial started saving for retirement
at the tender age of 23, or 17 years earlier than their parents. In addition, they’re
more likely to closely follow a spending budget and savings plan.1
hh They’re highly motivated.
Young investors recognize the obstacles in their way and are determined to
overcome them. They’re well educated and financially savvy, with 77% confident
in their ability to make complex money decisions.2
hh They have time.
Thanks to the power of compounded returns, the greatest ally millennials have is
their youth—but only if they put it to good use. The sooner they get started, the
less they may have to invest to reach their goals.
1
2
$345
Chase Generational Money Talks Study, June 2016
Ibid
INVESTMENT AND INSURANCE PRODUCTS ARE:
• NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR
OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES
• SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED
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NINE S TR ATEGIES FOR GE T TING AND S TAYING INVES TED
“A dollar saved in
your twenties is
hugely valuable in
terms of what it’s
going to provide
1. Create a plan. Planning experts at J.P. Morgan recommend saving 10% of each
paycheck during critical early years. But how to divide those dollars? More
than other generations, millennials prefer spending money on memorable
experiences instead of material possessions. A plan can help them strike a
balance between “must-haves”—such as an emergency fund, house down
payment and retirement—and “nice-to-haves” like travel and hobbies.
to you in your
seventies.”
– Katherine Roy, CFP,
Chief Retirement
Strategist, J.P. Morgan
MILLENNIALS HAVE UNIQUE FINANCIAL PRIORITIES
Percent who would rather spend money on memorable experiences
than material things
Millennials
Baby Boomers
76%
59%
Source: Eventbrite/Harris, https://www.eventbrite.ca/pressreleases/eventbriteand-harris-poll-find-baby-boomers-share-the-live-more-mentality-with-millennials/
2. Start saving something. If a 10% savings rate is unmanageable, as it is for
many new investors, simply start with smaller amounts and commit to gradual
increases after earning raises and paying off debt.
3. Save regularly and automatically. Automatic transfers from paychecks and
bank accounts help ensure that millennials save before they spend. It also
removes much of the guesswork and emotion from investing because the
same amount goes in to accounts each month, no matter how markets are
performing.
Another bonus: Regular investing enables millennials to automatically buy
more shares when markets are down and fewer when markets are up. This
process, known as dollar cost averaging*, can help reduce average share costs
over time, which, in turn, increases return potential.
*
Dollar cost averaging does not assure a profit and does not guarantee against a loss.
You should consider your ability to continue the strategy in a declining market.
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4. Stick with the plan through fluctuating markets. With retirement still decades
away, millennials have a luxury that older investors don’t—the time to ride out
volatile periods and allow investments to recover. Moving out of markets to
avoid the lows increases the risk of missing out on the highs and falling short
of goals.
WHAT A DIFFERENCE MISSED DAYS MAKE: IMPACT OF BEING OUT
OF THE MARKET
Average annual returns, January 1, 1997 – December 30, 2016
7.7%
4.0%
1.6%
-2.4%
-5.8%
No Missed
Days
Missed 10
Best Days
Missed 20
Best Days
Missed 40
Best Days
Missed 60
Best Days
Source: J.P. Morgan Asset Management, Guide to Retirement, 2017
5. Invest aggressively during younger years. Despite their long investment
horizons, millennials are three times more likely to own low-yielding CDs than
stocks.3 It’s true that stocks carry higher risks in exchange for higher return
potential, but those risks tend to decline over time. In any one-year period, for
example, market returns ranged widely from a high of 47% to a low of -39%. But
over longer time frames, returns became less volatile and more positive, with no
negative results over periods of 20 years and longer (see chart).
RISKS DECLINED AS TIME HORIZONS INCREASED
Range of average annual total returns in the stock market, 1950 – 2016
Best Return
Stocks averaged 7%
annual returns in their
worst 20-year period.
Worst Return
47%
28%
19%
17%
7%
-3%
-1%
5 Year
rolling
10 Year
rolling
-39%
1 Year
20 Year
rolling
Source: J.P. Morgan Asset Management, Guide to the Markets, 1Q 2017
3
Ibid
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6. Own a broadly diversified portfolio.* In addition to long-term investing, another way
to manage risk is to diversify across asset classes that typically rise and fall at different
times under different economic conditions. In this chart ranking annual performance,
an investment appearing near the top one year was often toward the bottom the
next—and vice versa. But a portfolio allocated across different asset classes was
generally around the middle to provide more consistent returns.
DIVERSIFICATION DELIVERED A SMOOTHER RIDE
Source: J.P. Morgan Asset Management, Guide to the Markets, 1Q 2017
7. Contribute at least enough to maximize employer 401(k) matches. Millennials who
don’t max out employer matching funds are leaving free money on the table. Ideally,
they would invest even more—up to the current maximum of $18,000 per year. Those
with extra money or not covered by a company plan may be eligible for Individual
Retirement Accounts (IRAs), including Roth IRAs offering the potential for tax-free
investing.
2017 RETIREMENT PL AN CONTRIBUTION LIMITS
For investors under age 50
401(k), 403(b) and most 457 plans
$18,000
Traditional and Roth IRAs
$5,500
SEP IRAs
$54,000
SIMPLE IRAs
$12,500
Source: Internal Revenue Service
Asset allocation/diversification does not guarantee a profit or protect against a loss.
*
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8. Explore home ownership. Chase’s research found that 23% of millennials
already own homes and another 39% expect to buy one within the next five
years.4 As an investment, real estate offers another way to diversify sources of
return potential while also creating equity to tap into if the need arises.
9. Get college debt under control. Easing the burden of student debt or other
loans can free up more money for investing. Possible strategies include paying
off high-interest loans first, consolidating multiple loans at a lower rate and
refinancing to reduce monthly payments.
THE IMPORTANCE OF MANAGING STUDENT LOAN DEBT
4 5%
of recent college graduates
currently live with their parents
71%
of student borrowers say loan
payments make it harder
to buy a home
6 5%
of parents expect to support
their children for up to 5 years
after graduation
$ 2 0 8 ,0 0 0
loss in lifetime wealth due
to student loan debt
Source: J.P. Morgan Asset Management, College Planning Essentials, 2016-2017
NE X T S TEPS
More than eight in 10 millennials say they would be comfortable discussing their
finances with an Advisor, but less than four in 10 currently do.5 Whether they invest
on their own or with an Advisor, millennials should focus first on clarifying their
goals, prioritizing savings and investments, and getting started. With most major
life events still to come, they’ll also need to keep their plan on track as they get
married, have kids, buy homes and change jobs.
4
Ibid
5
Ibid
Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.
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© 2017 JPMorgan Chase & Co. All rights reserved.
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