Researchers use the early 1980 as starting birth years to early 2000s as ending birth years to define as millennial. The millennial is facing the fourth industrial revolution where we need to embrace artificial intelligence, IoT, fusion of technologies, robotics and 3D printing.
A recent research by OCBC bank states that in Singapore 42% of the millennial population wish to start their own business in the next 5 years and 45% of the millennial population wish to join the gig economy. The millennial population expressed their concern for the future because when they enter the work place, they experience different economic crisis, lower real income than previous generation, more expensive property prices, own lesser assets and higher debt level.
Faced with various challenges, millennial need to start early on their financial planning, engage a few trustworthy financial planners, utilize the tools from various financial institutions and investment tools. They need to analyse and understand what various investment options are available to them.
Time in market investing will create a big difference. Comparing a guy who starts his investment journey at 20 years old versus a guy who starts at 35 years old. Assume they invest $500 per month, based on a yearly ROI of 6%, when they are 40 years old, the difference between the first guy and 2nd guy will be $90k. This is due to effect of compounding. You need time to do its magic.
Due to global economic slowdown and artificial intelligence replacing traditional jobs, millennial need to save more than 10% of their salary and invest prudently in assets. From the book “The 100 year Life”, the millennial will enjoy/suffer from longevity, they will live longer than their parents, it means that they need more savings to last throughout their lives. They need better returns on their investment. They are interested in dividend, insurance and passive incomes.
The millennial should adopt good financial habits, understand budgeting and avoid getting into debt issues. They need to set clear financial objectives and conduct regular financial review to ascertain whether they are on track. Millennial need to remember to set up their emergency funds which need to cater to 6 months of expenses. For self-employed, you need to cater for 12 months of expenses in your emergency fund. Millennial can consider setting a portion of savings in high interest bearing account such as DBS Multiplier Account, OCBC 365 and UOB ONE.
For the most basic insurance coverage, I will recommend those who just start working to make sure you have a whole life plan and Integrated Shield Plan. For the privileged ones whose parents bought whole life plan for them since birth, they just need to purchase a term plan to step up their coverage. Whole life plan with 25 years premium term means you pay for only 25 years and this plan will cover you for life.
Investing in the long term success requires discipline and an investment system to be set in place. We all know that it is important to buy low and sell high. How often can we successfully do this? The method to counter our emotions during investing is to adopt dollar cost averaging method. We can invest on a monthly basis or quarterly basis. This needs to be consistent and have no regards to the market condition.
Millennial can consider leaving 80% of their portfolio in traditional shares and bonds. The remaining 20% of their portfolio can be placed in technologies related such as artificial intelligence, automation, cloud computing.
To conclude, millennial need to start early in their investment, prepare their emergency funds to cater to unforeseen circumstances, create their own budgeting and follow strictly on their plans. They need to set short term and long term financial goals. They need to have sufficient insurance coverage. They need to invest regularly. Lastly, they need to increase their financial knowledge.