My son turned 30 this past April. It was about 10 years ago that he had a little extra money from his summer job and I encouraged him to put $1000 into a Roth IRA. He followed his father’s sage advice and now 10 years later he has…$1000 in his Roth IRA. No he hasn’t taken anything out. My investment recommendation was a stock mutual fund. He has not seen the growth that I had promised. Nor have many in his generation.
His generation has not experienced a bull market that drove their investments higher. His generation has seen only volatility and wild swings in stock prices. His generation has seen Bernie Madoff size Ponzi schemes and greed and manipulation in the mortgage market. Financial system collapses and bailouts. His generation feels like the stock market is nothing but a rigged game where the rich get richer while the small investor gets pummeled.
My son’s generation will likely have a longer life expectancy than my generation, meaning they will likely be in retirement longer. Social Security and Medicare will also look very different to this generation. Longer lives and reduced entitlement benefits translate into the need to save and invest more in order to be able to retire.
This is unfortunate because his generation needs to be in equities because historically equities have provided returns that exceed those of other asset categories and his generation will need these higher returns to meet their goals. But many in this generation are like the young worker I met with to discuss signing up for his company’s 401k plan. He said to me, “My wife said no way was I to sign up for this because all it is is a way for someone else to take my money.”
While I understand where some of the thoughts about investing come from in this generation, I must also remind them that there are still some investing basics that still do work.
Dollar Cost Averaging. This disciplined approach requires that the investor put a certain amount into their investments each month or week, whatever time period works. Some months when share prices are higher, you might buy fewer shares and in months where prices are lower, you will buy more shares. But over time, you will come out better than trying to pick the best time to buy shares of your investment.
Dividends. Using investments that pay consistent dividends is a wonderful strategy. The dividends that are received can be reinvested back into the investment. This is like having someone else make a contribution for you. It’s money you don’t have to put in yourself.
Diversification. Simply put, this is not putting all your eggs into one basket. Build your investments with different investment types. Not all investments respond the same in a given set of economic circumstances. This strategy can help cushion your overall portfolio from some of the wild swings and volatility we see in the financial markets.
The Lost Generation needs to be found and educated so that they can meet their future needs by returning to the basics.
Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2012 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
