The Biggest Mistakes The New Generations are Making!

     To see the mistakes we need to understand the new generations, primarily referring to Millennials and Generation Z.  These are the first generations to be born in the digital era.  And what comes with that is an extreme shortage of patience and a huge amount of information.  When it comes to patience, this generation has grown up in a time where a 5-second loading speed is considered slow.  Now the average American has more technology than there was when we put a man on the moon and more readily available information than ever known to mankind. These, as separate factors, aren't bad; but when put together, it creates catastrophe. This new generation has a fascination with getting rich quickly, and most of the younger generation try to find whatever that may be. Right now it's cryptocurrencies, where the price is driven by speculation alone.  Some people have made good money from it, but it is the most volatile market and people have lost lots of capital trading cryptocurrencies.

     So why are the younger generations participating in such a volatile market? Simple answer: Misinformation and idolization. Through modern forms of social media (Twitter, Instagram, TikTok, etc.) people spread misinformation about these get-rich-quick “investments.”  Then they will show off a nice car, a nice house, or whatever these generations idolized. I saw a video of a young “stockbroker” getting into a private helicopter to get to his office so that way he didn't have to wait in traffic. The video looked fake, but that's what this generation loves to see – people like them getting money easily. This is still the idolization that this generation loves to digest. It makes people try to get in on the “action.”   So many either fall short and make a little bit of money then walk away, or they put all their capital into it and lose it.

     There's also another downfall of this generation I haven't mentioned yet, and it is the fear of failing financially. When I say that, I'm referring more to the fact that they're too afraid to do anything with their money so it just sits in a savings account doing nothing. The most specific reasons I can see from their view are previous market crashes and the information available about those crashes, i.e., the .com bubble, the housing market crash of 2008, the COVID crash, and the stock market crash of 1928. 

     The thought of possibly losing everything drives people away from investing, but they shouldn't be driven away. We now have the SEC and FINRA.  After 2008, we increased the amount of money insured in the banks after the banks had failed.  We raised the amount from $100,000 to $250,000 after people lost so much money in said banks. We have done so much more to regulate securities, real estate, and other types of investments.  This generation is at such a young age that if they put their money into a long-term investment or security, it could increase their capital over their lifetime giving them very cushy lives and outpacing inflation. Instead, at present, this generation would rather have their money gain .01% in value every year than 10.8%.  So when bread goes from $4.00 to $4.12 in a year and their $4.00 turns to $4.0004, they're going to need to pull out a couple of slices.

     Now I will not reveal a problem without a resolution to said problem. The only patience this generation needs to learn is financial patience. Meaning they need to learn the best way for money is to grow it slowly, over an extended period. The best investment to do that with now is through exchange-traded funds, either bought through a brokerage account or a Roth IRA. What does an ETF do?  Well, it essentially is like a miniature index, although it's treated more like a day-to-day stock. A good example is the SPY ETF.  It's based on the S&P 500 Index allowing you to invest in the top 500 companies in America, which would give the average investor a great amount of diversity. 

     To give some statistics, SPY and DIA are two major ETFs.  Since 2001, they’ve averaged returns of 11.64% and 10.8% a year.  Certain markets that ETFs cover boom like Invesco's QQQ which has averaged 35.32% a year since 2001. QQQ covers more of the technology and financial markets, meaning it makes sense for the massive influx in returns since the rollover of the digital age.

     So I'll give a simple plan for the new generations to prepare for the future: 5/10/5: You cap your checking account at $5,000, you cap your savings at $10,000, and the rest of your money goes into any investment with a minimum yearly return of 5%.   If they can follow this plan, they will have great financial success as they get older.