Money Talks: Bridging the Retirement Investment Gap Among Younger Generations
In today’s fast-paced financial landscape, younger generations are often relegated to the sidelines when it comes to retirement investing. But why are they lagging? Let’s dive into the compelling story of Michael Weleski, a remarkable 21-year-old determined to break this trend.
A Young Investor’s Drive
Since the age of 12, Michael Weleski has learned the value of hard work, taking on various jobs to secure his financial future. “I don’t want to work a hard labor job until I’m 70,” he expresses, echoing a sentiment many young people share. Observing his grandfather, who immigrated from Italy and tirelessly toiled until his 70s, spurred Weleski’s ambition to save and invest.
Despite Weleski’s admirable drive, he is an exception among his peers. Research from the Global Financial Excellence Literacy Center at George Washington University indicates that American youth often struggle with basic financial literacy.
A Worrying Trend in Financial Literacy
The numbers paint a stark picture:
- The average age Americans begin investing is 33.
- Among millennials (ages 29 to 44), only 25% have a basic understanding of financial matters.
- A staggering 42% of millennials have used alternative financial services in the last five years.
Moreover, a 2023 survey by Saxo revealed that 44% of Gen Z investors (ages 13 to 28) cite limited funds as a reason for not investing, and only 29% possess a retirement account.
Paving the Path for Financial Knowledge
Weleski is pursuing an accounting degree to enhance his financial acumen. In his quest for knowledge, he’s already set up a personal brokerage account, investing in a variety of assets, including individual stocks and index funds.
Understanding Index Funds
For those new to investing, an index fund allows individuals to collectively invest in a range of companies. By purchasing shares in a fund tied to, say, the S&P 500, investors gain exposure to 500 of the largest publicly traded companies in the U.S., minimizing individual risk.
Weleski is invested in diverse index funds, including those that cover international companies and bonds. Not stopping there, he is dipping his toes in cryptocurrency while setting his sights on real estate investments for the future.
Building a Robust Retirement Portfolio Early
To prepare for retirement, Weleski has opened a Roth IRA, contributing the maximum amount allowed by law—$7,000 for those under 50. This tax-advantaged account can yield significant benefits in the long run.
Weleski’s intern role has allowed him to enroll in a 401(k) plan, harnessing the power of compounding interest at an early age. To illustrate, if a 25-year-old invests $500 monthly at a 4% annual return, they could amass nearly $630,000 by age 67. In contrast, waiting until 45 would leave them with just over $200,000—an alarming difference.
Establishing Financial Habits for a Lifetime
Good financial habits are crucial. David Root, CEO of wealth management firm DBR and Co., emphasizes the importance of getting started. “The biggest challenge is getting started and sticking with it,” he notes.
Weleski took initiative, seeking advice from knowledgeable mentors and making consistent efforts to learn about investment opportunities.
Continuous Learning is Key
For those starting their financial journey, Root advises finding a reliable coach or mentor. “You wouldn’t start a new medication without proper research and guidance. Apply the same to investing,” he says.
Weleski acknowledges the importance of being informed. He follows finance podcasts, such as “Diary of a CEO”, and reads diverse investment opinions to form his own views.
Understanding the Risks of Investing
Investing inherently involves risk. However, higher risks often correlate with higher potential returns. According to Investopedia, growth stocks carry greater volatility, while corporate bonds and cash fall under lower-risk categories.
Akin Sayrak, a clinical assistant professor at the University of Pittsburgh, advises younger investors to adopt a balanced approach. At the start of their careers, a 70:30 ratio of higher to lower-risk investments makes sense, shifting towards a more conservative 50:50 as they approach retirement.
The Bottom Line: Start Early and Educate Yourself
In the grand scheme of things, early and informed investing can set the stage for financial independence later in life. Even with looming economic uncertainties, the stock market offers a unique opportunity to partake in entrepreneurial success without starting a business.
By fostering a culture of sound investment habits from a young age, future generations can rewrite their financial narratives and prepare for a secure retirement.
While the importance of starting early cannot be overstated, it’s equally vital to keep learning and adapting strategies as necessary. So, whether you’re a seasoned investor or a curious beginner, remember: The earlier you start, the greater your potential for long-term success.
For more insights on managing your finances, check out resources like NPR’s “Planet Money” and Suze Orman’s “Women and Money”.
