How Millennials Are Missing Out On Millions Of Dollars
And what they can do to get it back
Marcos Mesa Sam Wordley/Shutterstock It looks like maybe, just maybe, the idea that Millennials are dying in the trenches of the wealth gap because they’re spending too much on avocado toast is beginning to lose hold. Which is great, because it’s time to move the focus onto the massive challenges that Millennials legitimately face.
Some may continue to challenge the facts, but that doesn’t make them any less true. Millennials face the most dire economic circumstances seen in the U.S. since the Greatest Generation. And they’re still missing out on one of the prior generations’ tricks for achieving record wealth: the stock market.
Millennials came of age during the Great Recession, when the subprime mortgage lending bubble burst and the economy was reduced to ashes for a period of many difficult years.
It’s only natural that, witnessing the abject failure of a system of complex mechanisms that seem almost arbitrarily complex to the uninitiated, staying well enough away would be the most logical response.
But shunning the stock market also has a major downside. A $3.3 million downside, to be exact.
Nerdwallet ran the numbers to simulate retirement with and without investmenting in stocks. They took the last 40 years of averages and applied that to the next 40 years, using the model of a theoretical 25 year old who began saving for retirement just now.
When all was said and done, they found that the version of the 25 year old who did invest in the market would accumulate a hefty sum of $4.57 million by the time they turned 65. By not investing in stocks, the doppelganger 25 year old would amass just $1.27 through normal retirement vehicles.
Now, $1.27 million is still a boatload of cash. However, one has to take into consideration the 40 years of inflation that would also hold sway. And inflation can be very inconsistent over a long period of time like 40 years. Right now, it’s relatively low, but it’s been as high as 7% in the 1970s and 10% in the 19-teens.
In just a 28-year period between 1990 and 2020, the cumulative inflation hit 102.4%. Following that same trend, you could see upwards of 200% inflation in 40 years, and someone planning for retirement without investing in the market would see a serious hit on their potential earnings.
Spending more means earning less, and this translates to shelling out $1,400 for the average television, $4,000 for the average oven, and almost $50,000 for a baseline Nissan Altima.
Investing doesn’t have to be scary
It’s wildly empowering to take control of your future. And there are plenty of resources for the average person. After maxing out your recommended savings and your retirement accounts, the easiest way to grow your money in stocks is by investing in Exchange Traded Funds (ETFs). These funds index entire industries so that if one company fails, the entire stock doesn’t tank and hit you with huge personal losses.
Instead of investing in Starbucks, you can plop down your funds in a food and beverage ETF like PBJ. That way you have exposure to a multitude of companies and aren’t just tied to the profits and losses of a single one.
There are so many strategies for investing, there’s almost one for every dollar that theoretical 25-year-old millennial missed out on in retirement. It’s important not to get lost in the weeds, though, and to make things as simple as possible.
Tons of banks and trading platforms out there can help you get started with intuitive websites and apps. Ironically, because of investment apps like Robinhood that have disrupted the market, most trading is now done commission free, so there’s no cost to you.
But what if the market crashes?
Prepare yourself for this inevitability by maxing out your regular accounts like 401(k)s and IRAs. Keep your savings in a bank account that offers competitive interest rates so that the money you have on hand doesn’t suffer too much from inflation.
If you’re truly, truly worried, then simply don’t invest more money in stocks than you’re willing to lose.
But the market always goes back up. After every crash, and every recession, stocks hit higher and higher marks, breaking records again and again. The real issue isn’t whether or not the market will go up again, but when. No one can time the market, not even professionals. So no one can tell you when stocks will crash or when they’ll be at their peak. Anyone who says otherwise is selling something.
Prepare for the long haul
Stocks are long-term investments. Day trading exists, sure, but so does legalized online gambling. The two amount to about the same thing. When you buy and hold index funds for years on end, the results are going to beat active trading every time.
This news won’t stop the silly Wall Street types from trying to force those big gains, but it will hopefully convince the average person that stocks aren’t as complicated as they thought.
Not to mention, investing is a worthwhile method of increasing the assets you have when you make it to retirement.
Maybe it’s time that Millennials began to take advantage of the same systems and tools that kept them out of the financial conversation until now.
There are signs that it’s happening already. From the Gamestop short squeeze to the cryptocurrency boom, younger fiscally minded people are creating shockwaves that will be felt throughout the tools and platforms that once belonged solely to wealth-laden Boomers.
It’s easier than ever for individual Millennials to get involved with investing. With free trades and a wide selection of apps and accounts, there are options for growing one’s assets everywhere you turn.
And with an average of $3.3 million more than your friends, you could build a whole mansion out of avocado toast.
Kevin Lankes, MFA, is an editor and author. His fiction and nonfiction have appeared in Here Comes Everyone, Pigeon Pages, Owl Hollow Press, The Huffington Post, The Riverdale Press, and more.