Orlando Ali

Millennials: Why the “Know-all Generation” needs more knowledge about investing

Orlando Ali

The year was 1980, Post-it notes were just introduced, the USA defeated the Soviet Union in the “Miracle on Ice”, the entire world was wondering “who shot J.R.?”, and perhaps most importantly, yours truly was born. Being born in 1980 I am at the end of period of generation Xer because the early 1980’s is the beginning of the millennial generation.

Although the dates might be very close, the attitudes and the experiences between gen-Xers and millennials could not be more different. As a gen-X teenager during the ‘90s, we listened to Pearl Jam and watched The Simpsons, whereas my millennial friends were rocking out to boy bands while watching the Power Rangers.

But, more important than our different tastes of music and television, is the difference in attitude towards investing and financial protection. Although millennials make up the largest component of the Canadian work force at about 37%, they also have the lowest rate of investments, where only about 47% are actually investing their savings[1].

Unfortunately, millennials are missing out on opportunities to grow their assets. It is not as if they are not putting money aside because they are; about 80% of millennials say that they put aside money from every paycheque into savings[2], they just are not investing it. So, while they are saving their money it is only sitting in a savings or chequing account earning minimal interest.

Statistics now point to their lack of knowledge as to why they are not investing, as almost 60% feel they do not understand enough about investing[3]. Yet as per my previous post, http://www.dfsinrexdale.com/you-need-financial-advisor-today/, certain companies will have you believe that it is best to manage your own investments. In fact, even though millennials do not consider themselves “knowledgeable”, 31% of this generation are still managing their own investments, which may lead them to obtaining less then optimal results.

The big issue here is that millennials are missing out on the future growth that they could be achieving. For example, a $1,000 investment in 1999, today it would be worth approximately $4,000 if they were investing in Canadian equities[4] - that’s four times their original investment. Of course past performance cannot guarantee future results, but based on history just imagine their net worth if they continued to do this over the next 40 to 50 years. Or imagine how much they could have saved to put a down payment on their first home, or how they could have paid off their student loans. It is never too late to start investing, but it is critical to invest early and often to take advantage of the compounding effect[5].

If you have read any of my posts, you know that your financial portfolio is a two-way street. You want to grow your portfolio through investing, but at the same time you need to protect your portfolio through insurance. Insurance is critical to your financial well-being because it is in place to ensure you do not dip into your long-term savings in times of distress. For example, a person might have a large amount of investments in place and their future retirement income is looking strong, but if disaster strikes and there is a critical illness, a disability which prevents them from being able to work, or worse, the death of a spouse or income provider, then they may have no choice but to take money out of their investments.

So, now that we understand where the insurance portion of your portfolio is critical, let’s look at why millennials should be looking at taking out insurance now.

First, as we all might expect, insurance premiums increase the older we get. A 35-year-old non-smoking male can take out a term 10 life insurance policy with a $1 million death benefit for about $46 per month. If they were 10 years older, the premiums would jump up to about $95 per month. If they were 55 instead….. a whopping $260.10 per month![6]

Of course this assumes they are still healthy enough to be approved for insurance and qualify for standard rates, as we already have discussed in previous posts that the older we get, the more likely it is that we have had health issues, and might not qualify (http://www.dfsinrexdale.com/patrick-took-life-insurance-importance-protecting-insurability/).

 Most millennials are avoiding investing not because they don’t want too, but because they feel they do not understand how. Rather than trying to understand, some then claim they don’t really care. Soon they realize that some of their peers are investing and they come to the understanding that they do not know enough about it so they decide to learn.  Then they finally feel ready to start acting on their new-found knowledge.

 Millennials, it’s time to listen to some words of wisdom from your gen-X elders and start seeking out professional advice on how you can start investing in your financial future.

Please call for more information or email us at info@dfsinrexdale.ca

 

[1] MISSING OUT: Millennials and the Markets. Ontario Securities Commission. November 27, 2017

[2] MISSING OUT: Millennials and the Markets. Ontario Securities Commission. November 27, 2017

[3] MISSING OUT: Millennials and the Markets. Ontario Securities Commission. November 27, 2017

[4] http://investmentsillustrated.com/clients/osc/bigpicture/graph.html

[5] https://www.investopedia.com/walkthrough/corporate-finance/3/discounted-cash-flow/compounding.aspx

[6] Desjardins Insurance illustration as of 8/29/2018 (Desjardins Insurance refers to Desjardins Financial Security Life Assurance Company, a provider of life and health insurance and retirement savings products) –illustrations were based on a number of assumptions and have been provided for illustration purposes only.

This article, and any other articles found on our site should not be construed as insurance or financial advice, or as an offer or solicitation to buy any products or services mentioned herein.
Orlando Ali

Orlando Ali

Orlando Ali is a leading Life and Health Insurance Advisor and Investment Fund Advisor at Desjardins Financial Security Independent Network – Rexdale Financial Centre.  He is here to answer any of your questions.  Give him a call today at: Phone: 416-695-1433 This article, and any other articles found on our site should not be construed as insurance or financial advice, or as an offer or solicitation to buy any products or services mentioned herein.


Orlando Ali
OAli@dfsinrexdale.ca
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