Were you born after 1980?
Did any of your childhood television programs include Sesame Street, Tennage Mutant Ninja Turtles, Arthur, iCarly, Pokemon or SpongeBob Squarepants (a personal favourite of mine)?
Do you remember the stock market crash of 2008-2009?
Can you fog a window?
If you answered yes to any of these questions, then you are a member of the elite Millennial generation.
The vast majority of millennials have been brainwashed by their previous generation – the baby boomers – into a very simple one asset investment strategy. And this strategy will prove to be VERY dangerous in the coming decades if it's the extreme bulk of your net worth.
Without further ado, let’s take a look at the investment and life strategy employed by 95% of people aged 18-35 at the moment.
- Do well in school
- Go to college or university
- Get a job. Hopefully with comfortable pay and good benefits.
- Save whatever money you can from your paycheque
- Live in the basement of your parent’s home or with some roommates so you have either dirt-cheap or no rent, at all
- When you have a decent amount of money in the bank, usually in the five-figure range, go to the bank and weigh your options from what they present
- The bank will tell you to put your money in one of 3 things. A GIC, one of their mutual funds or that you should buy a house or condo (depending on which city you live in) with a mortgage from them.
You will think, “Awesome. The bank told me I can get hundreds of thousands of dollars through a mortgage to buy a home and my parents were pushing me to do that with my money anyway."
This life-plan scenario seems eerily familiar. Almost robotic like another time in history when there were only two colours in the world of television.
When you think about the 1950’s, I would venture a bet that you think of the 50’s housewife, the classic Chevrolet in the driveway, a nice house just outside of the city, suit with briefcase and the whole bit ala the movie Revolutionary Road.
In 2040, when all of us boomerang children (the kids of baby boomers) that are a part of the millennial generation reflect back on these years I believe we will be comparing those two scenarios and how they are similar. The only exception being that you need both husband and wife working.
Everyone seems to follow the same mold, the same script and the same destination.
So what’s the problem?
If you’re satisfied with this and don't know any better, then nothing.
But there are plenty of other options to diversify your risk and reward by...
· Drastically improving your situation
· Substantially decreasing your financial risk
· Dramatically increasing your liquidity and ability to live
Fancy buzzwords Marin, but what are you talking about.
Think about it.
You’re saving, say 10-20%, from every paycheque in order to grow your bank account to $10,000 or even $100,000.
You know what you can do with a hundred large!?
You can make $7,000 per year investing it very conservatively and smartly. Though this is scary and foreign to 95% of people. The other 5% are laughing as their money keeps growing.
One day you’ll make the decision to start investing. You’ll soon find out that compounding interest that’s working in your favour is more exciting than the first time you downloaded an mp3 without paying for it.
But most people won’t do that with the money they save.
The only other thing on their radar is to put that towards real estate. Yes, forced savings.
The plan then becomes for you to drop that all of that hard earned, saved money, on a down payment for some real estate. Maybe a condo. Maybe a town home or heck, even a house.
“It’s a great investment.” According to everyone that has an interest in you buying. The mortgage broker, the real estate agent, the lawyer, etc…
Let’s say you have saved upwards of $100,000 by yourself or with a significant other. Of course, two money-earners are better than one.
You are now going to take all that money sitting in your bank account – earning a porcupine hair above zero interest – and plop it down to the bank, in order to borrow hundreds of thousands more to buy a property.
And at the same time, YOU will now be paying big interest to the tune of 2.79 to 3.5% to the bank in order to borrow that money from them.
Might I remind you how much money banks make…
You’re going to be left with no cash.
Cash can be king!
It is an army of soldiers waiting to be deployed in some market, to do battle on your behalf. It goes to these battles and can provide an income, a dividend and even a capital gain for you. All of this while maintaining it’s value.
But no, this money is earmarked for a house and a house only. You went from $100,000 in the green to hundreds of thousands in the red. All in the hopes that "one day your real estate will go up"
Most people just flow into this type of purchase like grilled cheese melting on a hot plate – ever so elegantly. I have fared no different earlier on in my life. I thought it was the only way to go so that’s exactly what I did.
Caution is warranted when you purchase a home. I spent more time researching my car purchase for $15,000 than I did for my first apartment purchase of $301,000. Won't make that mistake again.
I didn’t learn these other options at school. Things like investing, a balanced portfolio, ETF’s, maxing my TFSA. I learned them from others, much more successful than me.
There are other options.
But these modern times dictate that you’re going to be among the 95% of people with the same plan listed above.