Millennials: Strategies for a Brighter Financial Future

With ample time to prepare for retirement, millennials have a unique advantage to strategically build long-term wealth.

Published July 07, 2021

Reading Time: 4 minutes

| Andrew Band |

Written By:
Andrew Band, CFP®
, AAMS® Zoe Network Advisor 

There is a lot of conflicting information in the media about millennials and their future ability to accumulate wealth. Let alone as much wealth as their parents’ generation. One thing we know for sure is that some of them are already on their way to doing just that.

According to a study done by real estate firm Coldwell Banker, out of the 73 million millennials in America, just over 600,000 of them are already millionaires. That may not seem like very many, but by definition millennials are still early in their wealth accumulation journey!

Millennials are Optimistic about their Financial Future

In fact, millennials are generally optimistic about their financial future. A survey by TD Ameritrade found that 53% of millennials expect to become millionaires at some point in their life, with 16% saying they will hit that number by age 50 and 19% believing they will cross into a seven-digit net worth by age 40.

So the question is, what are some of the best strategies to help ensure that those millennials who haven’t yet accumulated any significant wealth can measure up to their expectations and are able to achieve financial security in retirement?

Strategies for Long-term Wealth

One of the distinct advantages that millennials have is that time is on their side. 

With ages ranging between 24 and 40 years, members of the millennial generation may be 30, 40, or in some cases, even 50 years before retirement. The mistake many people make is thinking that they can wait. With so much time ahead, there’s no need to start saving and investing for their future today.

By starting the process today, millennials can take advantage of one of the most powerful concepts for building wealth: compounding.

Money Grows Exponentially 

Albert Einstein is often quoted as saying that compound interest is the greatest discovery of the 20th century. There’s no record of him saying that, but the principle is arguably not far from the truth.

Here’s why: If you invested $10,000 at 5% interest for 20 years, you’d earn $16,532 in profit (ignoring taxes and fees). But if you doubled the rate to 10%, guess how much you would earn.

It might seem that doubling the rate would double the return, but that’s not the case. Doubling the rate increases the return by nearly 346%. Instead of earning $16,532, you would earn $57,275!

Here’s another visual example:

This is a hypothetical illustration meant to demonstrate the principle of compound interest and is not representative of past or future returns of any specific investment vehicle.


That’s the power of compound interest. Money doesn’t grow linearly – it grows exponentially.

Take Advantage of Your 401(k) 

Starting to save and invest now – even if it’s just a small amount – can make an exponential difference. And one of the best ways to start is with your employer’s 401(k) program. The money you invest grows tax-free and lowers your overall taxable wages. And in many cases, employers will match a percentage of employees’ contributions, which is like free money.

Any contribution amount will be beneficial, but if you can, we recommend that you try to put at least 10% of each paycheck into a 401(k) savings plan if you can afford it.

Throw Away Your Budget…

Another strategy millennials can use to help build financial security has to do with budgeting. Yes, the dreaded “B” word. 

Everybody says they need a budget. Many try to make one, and a few actually manage to follow through. But here’s the best thing to do with a budget: Throw it away.

Forget budgeting. It just doesn’t work.

Budgets fail because they are merely promises about how you will spend your money. But life happens. Somebody will get married and you’ll have to buy a present or airline tickets. Or somebody will suffer an injury or illness. Or the car will break down, or the roof will spring a leak. Budgets don’t prepare you for these expenses.

So instead of a budget, do this: Identify how much you need to save each month to achieve your long-term financial goals. Once you save that amount, feel free to spend the rest of your money however you wish.

If you don’t know how much you should be saving, that’s where a financial planner comes in. Not only can a planner help you figure out how much to save to reach your financial goals – a number that might be much lower than you think – but they can help you with your investments.

You’ve Invested, Now What?

But in this day and age of “do-it-yourself” investing, why shouldn’t millennials just do it themselves? Consider this.

You know you incur fees to buy and own investments. You also know you’ll pay a separate fee when you hire an investment advisor to help you. So the question is, is the investment advisor’s fee worthwhile? Or, stated differently, will the advisor’s services potentially enable you to earn more (net of all fees) than if you avoided the advisor and invested on your own?

Yes, according to Vanguard, whose mutual funds manage about $5.1 trillion for investors worldwide. Even though the company is well known for catering to “do-it-yourself” investors, its study has concluded that financial advisors may help increase their clients’ investment returns by about 3 percentage points on average. 

Vanguard identified several factors that contribute to these increased returns. The first and most significant pertains to behavioral finance: Keeping clients focused on the long term and urging them to stick to a regular investing plan can add up to 1.5%.

The other 1.5% comes from an advisor’s ability to keep investment fees low, strategic rebalancing, and providing clients with a “thoughtful allocation of assets,” meaning a strategic diversification across stocks, bonds, gold, real estate, oil and gas, foreign securities and other assets.

As mentioned before, for millennials, particularly those who begin investing early to take advantage of compounding, over time those 3 extra percentage points can have a significant impact on their ability to acquire wealth and achieve financial security.

Millennials: Achieve Long-term Financial Security

Don’t let what the media tells you about your financial future get you down. Making a plan that combines thoughtful investment and savings strategies with the benefits of time can get you well on the road to achieving your financial goals.

Disclosure: This article contains hypothetical illustrations meant to demonstrate the principle of compound interest and is not representative of past or future returns of any specific investment vehicle. © 2021 Edelman Financial Engines, LLC. Edelman Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services offered through Financial Engines Advisors L.L.C. (FEA), a federally registered investment advisor. Results are not guaranteed.AM1697024

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