Book Summary: Millennial Money
Patrick O’Shaughnessy’s Millennial Money looks at the reasons that despite having easier than ever access to investing and all its benefits, millennials simply aren’t investing at the same rate as other generations. The author discusses the reasons that this might become a problem in the future, such as the possible failure of social security and loss of compounded capital from beginning too late.
Related Book Summaries to Millennial Money:
The Compound Effect – Darren Hardy
The Magic Of Thinking Big – David Schwartz
Millennial Money Book Summary Notes:
The Benefits of Age
The hardest part of any new endeavour is the start. It’s also the most important part, actually beginning to put money aside for your future and understanding what you are doing with it.
By beginning to invest earlier and getting a habit established you can guarantee a much more successful future retirement than if you began 10 years from now. Or worse still if you only began saving 10 years prior to retirement.
The Cost of Inflation and Compounding
Many people park their saved funds in savings accounts with banks for the long term. However doing this ensures that you miss out on two things.
The first is the cost of inflation. Inflation is the amount that prices of goods and services increase by each year. This isn’t a problem until you realise that sometimes inflation is higher than the savings rate offered by banks. This means your saved money, year on year, is worth less and less in terms of purchasing power.
The second is missing out on larger compounded returns. By investing in stocks or real estate instead of parking your funds in cash you benefit from much greater returns. Over the long term cash has always been outperformed by shares and property. The difference in those gains becomes more pronounced overtime as well as the compound effect takes over.
The compound effect is one of the best ways to multiply your money. Say you invest $100 and a year later it has grown by 10%. Now you have $110 a gain of $10. However if the next year you experience another 10% gain your money will grow to $121. A gain of $11 this time. The difference between the growth of the first year and all the subsequent years is due to the compound effect. Your gains are beginning to make gains for themselves.
De-risk Your Investments
People believe that investing in shares is dangerous, akin to gambling. You could technically be correct if your treating it like horse racing then yes that would be gambling.
By using strategies and diversification, we can de-risk our investing though and ensure long term success. One highly beneficial way to achieve this is through diversification.
Diversification is the process of essentially spreading your money out instead of putting it all in one area. In terms of shares you could diversify by purchasing both local and international shares. You could purchase shares of companies from different industries like biotech and agriculture, that way a problem in either one is unlikely to affect the rest of your portfolio.
Another strategy is purchasing something called an index fund. Index funds are essentially baskets of shares. So instead of trying to diversify yourself you could just grab something like an American Top 500 Index, which would give you partial holdings in the top 500 biggest companies in America. Taken a step further you could buy a similar index fund for other countries as well. This is one of the simplest ways many investors enjoy the benefits of diversification without needing to constantly manage their portfolio’s changes everyday.
