Investment expert William Bernstein has some good advice for you. Life in the financial world is going to get a lot rougher.
So wise up.
But here’s the good news. If you can do just five things right, you can survive and even thrive in tomorrow’s challenging landscape.
It’s really not that difficult, Bernstein says.
We’ve boiled it down to 5 simple steps to financial survival.
Check out a recent media interview with AFA’s Mari Adam and Stephanie Cooper discussing the special challenges facing millennial women and why they still save and invest less than men.
You can find all Bernstein’s tips – and a compact crash course on financial survival – in his free ebook “If You Can: How Millennials Can Get Rich Slowly”.
1. Save 15 percent of salary every year.
Twenty-somethings need to start by saving 15% of their salary each year. Sign up for your workplace 401(k), contribute to a Traditional IRA or Roth, or save in a personal investment account. Get started as soon as possible, and cut back on luxuries like big screen TVs, smartphones and eating out. “Life without these [luxury items] may seem spartan, but it doesn’t compare to being old and poor, which is where you’re headed if you can’t save,” says Bernstein.
2. Don’t think you can invest your way out of this.
There’s no shortcuts. Many neophyte investors think that if they just pick the right stocks, or funds, or whatever, they can grow their way to millions. Fat chance. Says Bernstein: “Even if you can invest like Warren Buffett, if you can’t save, you’ll die poor.”
3. When it comes to investments, KISS (keep it simple, stupid).
Don’t complicate things. If you don’t know what you’re doing, divvy up your savings among a few index funds to make up a diversified portfolio. You can’t get away with this when you’re older and getting closer to retirement, but when you’re starting out, don’t sweat the details. You don’t need to understand everything about investments, but you should grasp the basics. No risk means no return (that means you can’t grow assets by investing only in savings accounts and CDs). If you want growth, you’ll have to take on some risk. But time is on your side, so keep a long-term perspective and hang in there.
4. Block out the noise.
All that stuff you hear on TV and in the financial press? Just tune it out. Don’t get carried away by market euphoria, or run for the investment exits when the market tanks. “Ninety-five percent of what happens in finance is random noise, yet investors constantly convince themselves that they see patterns in market activity,” says Bernstein. Keep the blinders on and keep plowing forward.
5. Be wary of those peddling investment products.
News flash: Not everyone in the financial industry is your friend. “It’s a little known fact that stock brokers do not owe their clients what is known as “fiduciary duty”—the obligation that most other professionals have to put their clients’ interests above their own,” warns Bernstein. In contrast, firms like ours are fiduciaries who put clients first, as required for all Certified Financial Planners (CFPs) and Registered Investment Advisors.