3 Investment Tips for Millennials

 

 

Let’s be honest, investing isn’t always easy – at least it doesn’t always seem that way. With so many different options available on the market (from mutual funds to stocks), choosing the best strategy can be overwhelming. That’s where the assistance of a financial advisor comes into play.

 

It’s very easy to get caught up in hot tips, news headlines and guidance from family and friends. It seems like everywhere we look someone is giving millennials investment tips. The truth is finance is personal, and that’s why it’s so important to get tailored advice from a professional. With that being said, there are some pieces of advice that all young investors should know.

 

Here are three investment tips for millennials who want to start investing:

 

Start as early as possible

 

Yes, that’s right, young people should have started investing way before they were coined as millennials. As soon as you have an income (no matter how big or small) a portion of your paycheque should go into savings.

 

Thanks to a little thing called compound interest there are big benefits for millennials who start investing early. Compound interest helps your investments grow faster because your monthly earned interest (or dividends or capital gains) is reinvested back into your account. Therefore, the next month you earn interest on the previous month’s interest and so on for years to come. It’s brilliant.

 

Think long term with your strategy

 

According to Forbes, investing for the long term helps millennials see the bigger picture when it comes to risk versus reward in your portfolio. “Risk is kind of like that friend who regularly cancels plans but always comes through in a pinch. There might be heartache in the day-to-day, but in the long run, you’ll be glad you stuck it out.

In investing, more risk means the potential for more reward. Could you lose money and never collect that premium? Sure, but that’s unlikely when you’re in it for the long-term.”

 

Be honest with your financial advisor

 

Professional advice can help find an investment strategy that fits your individual plan, financial capabilities and life goals. However, that can only happen if you are completely honest with your advisor.

 

Think of a financial advisor as your financial doctor, they can’t totally assess the situation and provide a recommendation until they have all the information. This includes your short term and long-term goals, tolerance for risk, time horizon and general knowledge of the investing world.

 

If you have questions about investing or want to start investing but don’t know where to begin, I’m happy to help. Let’s chat about your goals and investment options for millennials.

 

*This content was originally created by Manulife Securities for information purposes only. It has been distributed for advisor publication.*

Cash or Fixed Income (GIC's): The Ultimate Question....

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As an experienced Wealth Advisor and former Bond Trader, the aforementioned question is asked of me daily.  Clients are stressed to see high cash levels in their 'investment' accounts and a typical conversation I have follows this path.....

 

Interest rates are at historic lows and will likely remain low for the foreseeable future. 

 

“Hi Tim.  I know we discussed maintaining cash in my portfolio.  I was wondering about the other low risk options available.”

“Yes, Bob, we are holding a relatively large amount of cash on which you are earning only 1.30%.  There are no fees, therefore, you are netting 1.30%.  Factoring inflation and taxation, (for non- registered accounts), holding a cash position results in no generation of wealth.  Governments around the world are trying to force you to invest in Equities vs Cash, or GICs.” 

 

So, let us look at the alternatives:

 

“We can reach out and lock-in an interest rate of 2.7% for five years via a GIC.   Keep in mind this is locked.....you cannot touch it.....and a bond mutual fund will most often net out less than 2.7%, after fees.”

“Wow, I can get a mortgage for that rate of interest.” 

 

The term I use most often with clients is 'optionality.'  By giving up 1.4%, (2.7%-1.3% from the example above), you are allowing yourself to make any financial decision you want.  “Do I buy a rental property with a low rate mortgage?  Do I loan the money to my daughter?  Do I invest in a profitable company with a healthy and stable dividend?”

 

“Is 1.4% annualized going to change your life, Bob?”  I will answer that....”No.”

“We can invest in Canadian Bank common shares with a dividend of 3.5-4% and have significant potential long term capital appreciation.....but....what if?”  

“What if the share value declines by 20%?”  You have to be honest with yourself and ask yourself these questions:  “What would I do if that happened?  Sell/Hold or Buy more?”

   

My career is based on advising people to invest their money and I am advising my clients to be very careful.  Work hard, don't spend a lot and be very careful with what you have and have informed discussions with your Financial Advisor to determine the best financial plan for you based upon your current life situation, risk tolerance and objectives.

 

Another core message that I communicate to my clients is this:  Don't expect your hard earned savings to grow rapidly.  No advisor on the planet can do that consistently with any certainty.  The farther you reach, the greater the risk.  

 

 

Tim Wilson, CFP, CIM

Investment Advisor

 


Note: The opinions expressed here are Tim Wilson's.  Cornwall Wealth Management Group/Manulife Securities Incorporated are not responsible for the accuracy of any of the information supplied here.