Millennial meet-up on managing money

For Millennials, many find investing to be a challenge: some may be overwhelmed by an array of choice (after all, there are only 3,454 mutual funds in Canada*) while others may not understand how to put in place a savings plan to achieve their goals.

From a behavioural perspective, if we don’t know where to start, many of us will put off the task to another day and conclude that investing can wait for later. We want to help change that.

As part of Newport Private Wealth’s NextWave initiative – designed to help Millennials become educated stewards of wealth – last evening over 35 young investors from the Newport network met in our office to talk about money. In addition to presenting and discussing topical wealth management issues, the event gave our attendees a chance to network with like-minded peers, make connections and exchange ideas.

Here’s a quick overview of the topics we covered and the dialogue between the Newport portfolio managers and attendees.

Budgeting
Fun Fact: The average Millennial from Toronto spends $38,572 annual ($3,214 monthly)

Admittedly, there is not a lot of fun here for younger Millennials living in Canada’s largest city.

However, most Millennials understand how to use Microsoft Excel and one of the best ways to put that skill to work is creating a budget. Knowing how much we earn and spend on a monthly and annual basis is what allows us to save, invest and build wealth for the future.

From the event, one piece of advice that many attendees found helpful was to “Pay Yourself First.” The strategy is to treat savings as a fixed expense i.e. set aside a fixed percentage of your income the day you get paid. As portfolio managers, working with our younger clients, we try to discourage savings in the form of “what’s left over” after subtracting all other expenses from income. That’s paying yourself last and often leads to infrequent and irregular savings.

Understanding where and how you spend money has plenty of rewards: you will see opportunities to lower some expenses and spend less than you earn, and you can create a better savings plan for big ticket purchases.

One of our attendees put it best: “budgeting helps me feel better about spending money because I know what I can afford.”

Of course, starting is the hardest part so we were happy to provide several of our budget-curious attendees with tools we use when creating financial plans with Newport clients. Other ways to get started: download your debit/credit card transaction history if you use online banking. There are even apps for our phones that track spending.

So, creating a budget is easy to do and should be a cornerstone of wealth advice and financial planning for Millennials.

Savings
Fun Fact: 80% of millennials have savings with an average savings amount of $0 – $25,000**

A question I was asked many times: “how much should I save?”

The answer to this is save as much as you can as every little bit counts! The key to saving is to focus thought, energy and time on creating a plan to help you achieve your goals.

As a best practice, Millennials should save consistently. Although the amounts may seem small at the outset, over the long-term these dollars do add up. Having a systematic savings plan in place and saving at every pay cheque are excellent ways to start building up that nest egg and develop healthy saving habits.

While one can be forgiven for guessing a Savings Account is the best place to save, Millennials should be using their Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) to house savings.

It was great to hear several attendees demonstrate their understanding that growth in these accounts is sheltered from tax. What created a lot of good conversation was which account is best if you can only contribute to one. Spoiler alert: for most, it’s the TFSA.

However, everyone’s situation is different and we are happy to discuss with Millennials whether a TFSA would make more sense vs. an RRSP. For example, if you can only save $2,000 annually and your employer will match $2,000 worth of RRSP contributions annually, absolutely contribute to the RRSP. The employer contribution represents a 100% return on your money!

Investing
Fun Fact: 53% of Millennials do not have any investments

As an Associate Portfolio Manager, this is my favourite topic, partially because I can sympathize with how difficult it is to get started. One of my favourite terms is ‘analysis paralysis’ and I imagine its origin came from a first-time investor.

Understanding the basics of a stock vs. bond vs. mutual fund vs. ETF should be an entry-level requirement prior to investing, especially for those self-directing their investments. As Millennials, we may try on multiple investing hats early in our careers. Maybe we put in the effort to do our own deep fundamental analysis to pick undervalued stocks, maybe we take hot tips from our friends and family (not a recommended strategy), maybe we buy a handful of index-tracking mutual funds or ETFs, or maybe we work with an advisor/portfolio manager we trust to build portfolios on our behalf.

Regardless of the route chosen, what’s imperative is understanding yourself, your goals and your comfort with risk.

As portfolio managers, we have these conversations with clients on a regular basis because it allows us to build the strategy that best suits their needs. Failure to have these conversations can lead to the worst type of investment strategy: one you can’t stick with year-after-year.
Of course, the most powerful outcome is combining consistent savings and investing due to the power of compounding. Due to its strength, Albert Einstein is said to have once described compound interest as “the eighth wonder of the world.” I like to think of the effect as a snowball rolling down a hill: the further it goes, the more snow it accumulates and the larger the snowball becomes.

Financial Goal Setting

The Newport team was joined by Lisa Petkovsek, Certified Professional Coach, who led attendees through a variety of goal-setting workshops, designed to help attendees think critically about their goals and the steps needed to achieve them in confidence.

Goals help us become aware of where we are now and where want to go. Once we have an end point, it’s much easier to create a plan to get there. From a financial perspective, it also allows us to make conscious choices about where our money goes.

Goal setting is something we are all familiar with (or should be). In Lisa’s presentation, one piece of content she gave which I thought was very helpful in setting goals was the idea of incorporating a minimum and maximum acceptable outcome:

• Acceptable minimum: The least you could do and still feel like you’re moving forward
• Ideal Maximum: If the stars aligned and nothing got in your way
• The Middle (Realistic Stretch): A realistic goal that still causes you to stretch

What I like about this idea of creating a range of outcomes is that it gets us thinking about the variables that could lead to a goal’s degree of success. With an understanding of those variables in-hand, it allows more opportunity to control them.

Networking with our Peers

It was a privilege getting to know several attendees and listening to them address topics important to their financial well-being and future. Whether during our cocktail hour or through roundtable Q&A periods, attendees were eager to interact and came ready with questions and points for discussion.

There was great back-and-forth and afterward, a couple of attendees shared their impressions.

“It was really great to see Caitlin, Amelie and Lisa leading and presenting at this event. From my early exposure to the investment industry, I can see it’s a male-dominated field, so their presence, perspectives and opinions were a refreshing element for these conversations.” – Jessica L.

“This was my fourth next wave event. Tonight’s presentation helped reinforce my strong belief that small purchases – often overlooked as minor or insignificant – are actually truly important to one’s overall financial plan. Yes, I’m talking about those small coffee and snack purchases during the workday. These small purchases “today” end up being a much larger number at year’s end. The habit of being consciously aware of the smaller purchases will make you more prudent when it comes to larger ones. As William Lowndes once said, “Take care of the pennies and the dollars will take care of themselves.” – Carter P.

If you would like to learn more about the NextWave program or inquire about a future event, please contact Caitlin Chapman or Amélie Beauregard.

* https://www.ific.ca/wp-content/uploads/2019/01/IFIC-2018-Investment-Funds-Report.pdf/21611/
** https://www.theglobeandmail.com/investing/personal-finance/gen-y-money/article-what-is-a-normal-financial-situation-for-millennials/