PNC Investments surveyed millennials with investable assets of $5,000 or more, or who have $1,000 or more in investable assets and a qualified retirement plan, and gained some interesting insights.
As it turns out, many millennials (who reached adulthood early in the 21st century, and for this survey were born between 1983 and 1997) take saving seriously. In particular, the majority of those between the ages of 25 and 29, who were in high school during the 2008-2009 recession, learned about saving and investing from their parents.
Growing up when savings account interest rates remained stagnant while stocks climbed, more than half say they learned about saving money at a very young age. Now, as adults, they feel relatively well positioned for the future.
In fact, according to the survey:
- 56% expect to retire with financial stability
- 48% already have an emergency fund
- 47% know their financial goals for the next five years
Taking the next step
While the majority of millennial survey participants had been encouraged to save, their families tended to focus more on saving and less on investing. In addition, most don't feel in control of their financial well-being.
Where might millennial investors find opportunities to improve?
1. Shift from "saving" to "investing".
Millennials have longer to accumulate assets for retirement, giving them the luxury of being able to take on more risk and potentially achieve greater returns with the power of compounding. While around 66% of respondents have an employer-sponsored retirement plan, only 28% agree they "have a solid understanding of how to successfully invest" their money.
Millennials may want to consider exploring other non-retirement investment vehicles such as mutual funds, stocks and bonds. Additionally, with 84% of respondents owning a checking or savings account, money market account or CD, it’s important to recognize that these types of traditional saving vehicles generally offer lower risk and lower interest rates, which tend to lead to lower returns over time.
2. Seeking professional guidance.
Many investors learn about investing for retirement from their family members or employers. A handful use or are aware of "robo advisors," or automated online portfolio managers, but don't receive live, personalized support. In fact, only about 1/3 of young investors seek professional advice from a financial advisor.
Bringing a financial advisor into the equation can help these investors identify, size and prioritize their goals in a highly personalized manner. In addition, an investment professional can help create a plan and identify relatively easy, actionable steps that will help each investor stay on track toward their goals. It's about developing the mentality that the actions you take today, whether big or small, can impact your future.
3. Increasing the size of retirement contributions.
About one-third of respondents were confident that they were saving enough toward retirement, and 10% put aside 15% or more of their income each year. However, more than 60% are investing less than 8% of their income, and may find themselves coming up short. Recognizing the power of compounded earnings, it's key to maximize contributions and employer matches now, when there's more time for investments to potentially grow. Millennials may also consider opening an Individual Retirement Account (IRA) to complement their employer-sponsored retirement plan and help maximize their retirement assets.
4. Building an emergency fund.
Nearly half of the respondents had emergency funds in place. But that means the other half did not. Typically, it's recommended to have enough to cover three to six months of expenses. This is important to have in place when unexpected expenses arise, so as to avoid other less than ideal funding options such as accumulating debt, taking money from your investments, or borrowing against your 401(k).
According to Rich Ramassini of PNC Investments:
Millennials should devise a comprehensive financial plan, consisting of an emergency fund, a mix of savings and investing and a clear understanding of their goals.
If you or someone you know is ready to take investing a step further, a PNC Investments Financial Advisor can help. Contact PNC Investments at 855-PNC-INVEST today to discuss your financial situation and create a customized financial plan.