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Financial Toolkit for Millennials: Savings, Investment & Fear Of Missing Out

One of the scariest things I saw recently was when the cryptocurrency bubble eventually burst. After the hysteria of 2017, the price of digital currencies fell around 65% in January 2018.

But it wasn’t the fall that scared me. For me, it was the number of tweets I saw from American students who had used their tuition fees to buy the new online currencies. They were left terrified at their inability to now pay for their studies.

These were extreme examples but it highlighted to me how easily FOMO (Fear-Of-Missing-Out) can take hold and why the distinction between savings and investment is so important.

So I wanted to take it back to basics.

Short Term (but not as short as you may think)

“Savings” are for the short term. You might have a purchase in mind; a new car, a holiday, or a house deposit, basically anything within the next Five years. Whatever it's for, when you come to make that purchase think how gutting it would be if the money wasn’t there.

So you keep your savings in cash. Boring old cash. You won’t get much interest at the moment, but at least you know when you go to spend it, you’ve got it.

Five years might seem a long time to keep your money earning very little but the most important thing to acknowledge is that all investment comes with risk. No matter how attractive the potential returns may be, any investment can also fall in value, leaving you with less than you originally invested. If someone is telling you otherwise, it’s probably a scam.

Cash can be frustrating but consider how those students felt when they couldn’t pay their tuition. You are weighing the cost of short term frustration against the potential for tremendous anxiety or disappointment.

Investments – The Long Game

Investments should be made with a long term goal in mind so time is on your side. You can take more risk if you are comfortable doing this, as there is a potential to get a better return over the long term. How much risk you take depends on you, your goals, your wealth and – crucially - your experience.

The key point is, it doesn’t matter as much if your investment falls in the short term because you have time on your side to allow it to recover. Even if an investment falls to zero, whilst obviously uncomfortable, you still have more time left to earn more money and replace it.

What’s more, you don’t need a huge lump sum to start investing. It can be as simple as carving out a small amount each month.

The danger of FOMO

In late 2017, my newsfeed was full of get-rich-quick stories, I constantly overheard people at pubs and the gym talking about their “cryptos” and my 83-year-old client (who doesn’t have an email address) asked me if he should get involved. The idea that you were missing out was everywhere and that made it hard to resist.

Investments can often seem a way to get rich quick – this is totally wrong. Investing short term is barely any different to gambling. As with gambling, there will be people who talk (often loudly) about their big wins. But would the same person be so loud if talking about their big losses?

Think of investing as the Tortoise and the Hare. Slow and steady wins the race. Playing the long game with investments can be a gateway to long term wealth but it takes time and discipline to achieve it.

N.B. This is not a comment on cryptocurrencies. Human behaviour affects everyone; even professional investors. I finally gave up on 11 January 2018 and bought £100 of a cryptocurrency.... three days later it fell 73% (lesson learned!!!)

 

Disclaimer: The information provided through the Equilibrium website is based on our opinion and is for general information purposes only. It is not, and should not be construed as financial advice. Investments may (will) fall as well as rise. Any performance targets shown are what we believe are realistic long-term returns. They are never guaranteed.