Millionaires, who make up a savvy, actively involved group of investors, offer advice to young adults who want to learn to invest as part of our May survey.
Most millionaires are self-made and attribute their success to hard work, education and smart investing, so it’s no surprise they think beginning investors need to become well-versed in the advantages and disadvantages of stocks and bonds, and other types of investments. Wealthier millionaires are more adamant about the importance of financial literacy.
The vast majority - 93 percent of millionaires with up to $5 million and more than 97 percent of millionaires with $5 million or more - said it was important that young adults who want to learn to invest understand the pros and cons of various investment products. Millionaires educate themselves by watching the financial news on cable TV, visiting financial websites and communicating with their financial advisors. They are more likely than non-millionaire investors to engage financial advisors, who can help them set long-term goals and deter them from making decisions based solely on emotion.
Millionaires feel it’s equally important for a beginning investor to develop an understanding of investment risk. Young adults who want to learn to invest need to ascertain their tolerance for risk. So-called “most aggressive” investors, for example, are willing to put all of their money in risky, potentially rewarding investments. Conservative investors, at the other end of the spectrum, are not comfortable placing any of their assets at risk. A conservative investor tends to own insured products, such as federally guaranteed bank deposits or insured municipal bonds. In so doing, they forego potential gains in exchange for security, while an aggressive investor is more interested in profits than stability. In between are moderate and aggressive investors.
A beginner who wants to learn to invest must also understand a strategy known diversification say 93 percent of millionaires. Diversification allocates assets over a wide variety of investment products to achieve maximum gains with minimal risk. It’s the millionaires’ way of saying, “Don’t put all your eggs in one basket.”
The principals of good investing extend to retirement planning, the millionaires say. More than 92 percent feel that someone who wants to learn to invest needs to become familiar with the various ways to save for retirement. They are unequivocal about young investors needing to take full advantage of employer-sponsored 401(k) plans. Most millionaires – more than 93 percent – say it’s very important beginning investors understand how much money they will need to retire comfortably. More than 92 percent feel investors must have a clear understanding of what their actual expenses will be when they retire. These sentiments may be in reaction to several national studies that show that most Americans will run out of money in retirement.
Words of wisdom from older, more experienced investors may help ease the anxiety of young adults, who remain highly concerned about their financial situation two years after the official end of the Recession. In an April survey conducted by Spectrem Group, more than 70 percent of young non-millionaire investors said they were worried about having enough money set aside for retirement. More than 40 percent said they would like more help understanding and funding their retirement plans.