Millennials don't have it all that easy on the financial front. Many are saddled with student debt and stunted by stagnant wages, and those who are doing a bit better financially are perhaps scrambling to save money to buy homes. It's not surprising, then, to learn that 43% of millennials aged 25 to 34 aren't investing their money, according to a survey by GOBankingRates.
The problem, of course, is that delaying investments could mean losing out on thousands upon thousands of dollars in missed growth. And that's why millennials need to change their tune on investing -- immediately.
Why aren't younger Americans investing?
It's easy to make excuses for not investing, but millennials have their reasons. For 45%, the decision not to invest boils down to not having enough money to do so, GoBanking found. For 12%, it's that they don't know how. Then again, 16% of millennials don't invest because they simply don't want to.
But if you don't invest when you're fairly young, you'll lose out on years of compounding, and that could stunt your savings' growth over time. Imagine you're 25 and start investing $300 a month between now and age 65. If your investments deliver an average annual 7% return, which is more than doable with a stock-heavy portfolio, then over 40 years, you'd grow $144,000 into a whopping $719,000. That's a $575,000 gain.
Now watch what happens if you wait until age 35 to start investing that $300 a month. Assuming the same 7% return, you'd be looking at $340,000 by age 65. That's still a decent $232,000 gain, but it's not nearly as substantial as $575,000.
And that's why it's crucial to start investing at a young age. The sooner you invest, the sooner you get to reinvest your gains to grow your wealth.
Ramping up on the investment front
If you've yet to invest much or any of your money, the sooner you get moving, the better. A good way to start investing is to contribute to your employer's 401(k) plan. That way, you'll get to set aside funds for retirement and benefit from tax-advantaged growth on your money (and, in the case of a traditional 401(k), pre-tax contributions). If you don't have a 401(k) through work, you can open an IRA instead. Both accounts offer tax benefits, and you don't need to put in a ton of money at first. Start with $50 a month if that's all you can swing, and increase your contributions as your earnings increase over time. The key, however, is to start somewhere.
If you're fairly clueless on how to invest, a good bet is to load up on index funds rather than buy individual stocks. These funds, like the name implies, track existing market indexes like the S&P 500 so that when the market does well as a whole, you make money. Index funds don't require the same level of legwork as vetting individual stocks (though you should research the funds you're interested in before buying them).
And if you're worried about losing money, index funds offer some protection, because what you're buying is essentially a variety of different investments in a single bucket. That way, if a single stock takes a hit, you don't lose a ton of money automatically, because it's just one of many you own.
The longer you wait to start investing, the more money you stand to lose out on in your lifetime. The benefit of being young is that time is on your side for growing wealth, so don't pass up that key opportunity. If you do, you'll be sure to regret it later on.