Cash is NOT King for Millennials
I’ve been reading a lot about millennial trends lately, and… the kids are not all right.
One of the more disturbing pieces shared the results from a recent survey of millennials on where they believe their long-term savings should be:
“About 39% of Millennials picked cash as the preferred way to invest the money that they don’t need for at least 10 years – the biggest percentage of any age group. Another 24% chose real estate, while 13% picked the stock market.”
Compare these results to the total population,
“Across all age groups, 25% said they prefer cash investments, 23% chose real estate and 19% said they would put their money in the stock market.”
and you’ll see that those who stand to benefit the most (millennials) from long-term compounding investment returns, are the most risk averse to capturing them. Millennials fear investing. A lingering after-effect of the 2008 market crash, perhaps?
Sadly, its not just talk – 52% of millennial savings are in cash.
Not good, folks.
I’ve talked about why you need to start investing previously. In short, if you don’t, inflation is going to eat away at your savings until you are left with only a fraction of the buying power you started with. And with pensions dying/dead and Social Security not being the guarantee it once was, we’re going to have to heavily lean on investment returns to fund our long-term financial goals and retirements.
Cash, or cash equivalents like savings deposits, certificates of deposit (CD’s), and money market accounts (MMA’s) haven’t always been a bad investment. There have been times in recent decades where you could get a 5%+ interest rate from one of these investments, with no risk. But with current bank interest rates at well under 1%, we are far away from a return to those times. And less than a 1% return just doesn’t cut it.
But… don’t just take it form me. What does one of the greatest investors of all time, Warren Buffett, think about cash as an investment vehicle?
“The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.”
In his most recent shareholder letter, he provided some sound investment advice for beginning investors,
“Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s. (VFINX)…Accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs.”
Investing can be as simple as that.
While short-term investing in the stock market might seem risky (and even result in losses), the key is to stick with it and keep contributing for the decades ahead. The alternative is getting your hard earned savings eaten away by inflation – and that’s no way to live like royalty.
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