Licensed CPA Riley Adams shares his thoughts on how most financial advice fails to address the needs of the millennial generation.
Riley Adams is a licensed CPA in New Orleans. He created the website Young and the Invested to offer financial advice targeted towards young people. We spoke to him about the general state of financial advice discourse, his personal experiences with finance, and his financial advice for others.
OppLoans: You’ve said you started your website “Young and Invested” because you found that most financial advice is not applicable to young people. What are some examples of conventional advice that you see often that aren’t helpful to young people? Was there a specific piece of advice that was so tone-deaf, you knew you had to start trying to correct the conversation?
Riley: Most of what you read in the media highlights the perpetual problems millennials face when it comes to establishing good financial habits like living within your means, saving money, or setting aside enough to fund your retirement. But why is that? What is driving this?
From my perspective as a millennial, I don’t get excited about delaying my gratification and saving consistently to reach some eventual goal 40+ years in the future. Blame long-term unpredictability, social media, and our on-demand culture. We desire a life of convenience and immediate fulfillment.
Stated simply, we want a life bursting with experiences and to be financially free without having to follow a traditional retirement path. When we look at what’s ahead, we don’t know what tomorrow will hold.
As a result, we’re more inclined to delay gratification a bit less than our predecessors. YOLO (you only live once), right?
We must confront unique frictions other generations didn’t have to face. Namely ballooning student debt, stagnant wages, increasingly-expensive homes, and impediments in career advancement. As a result, I’m not of the mindset traditional financial advice applies to our generation in the way it did to Gen-Xers or Baby Boomers.
When people advocate for saving 10% of your salary in perpetuity and relying on Social Security and Medicare to cover the rest in retirement, I’m not certain this will be enough for us to live comfortably.
Because we cannot afford to start saving for retirement as early as previous generations and we have less certainty of having entitlement programs existing in their current forms, we need to find another way to reach retirement.
As such, I advocate for pursuing financial independence rather than a strictly traditional retirement. And because our efforts compound, I suggest seeking it sooner, rather than later.
This requires developing unique skills to take up side hustles, making investments in assets which provide passive income to cover our costs of living, learning to live within our means, and discovering how to build wealth through passive index investing. This is how I would redefine retirement for millennials, most of which differs from conventional retirement advice.
OppLoans: Would you mind explaining passive index investing and give an example or two?
Riley: It’s tempting to think that an investor’s job is to find the best stocks at all times, but this view presents all kinds of problems. The better approach involves viewing investing as a spectrum of probabilities. By that, I mean evaluating the probabilities of certain investment outcomes.
For example, do you find it more or less likely that Google will double its revenues in the next 5 years? Why or why not? What unique insight do you have which leads you to think this outcome is more or less probable? How does the market feel about that probability? The question to ask is, “What do I know about Google’s business that the market doesn’t?”
Because I want to reduce the level of risk specific to any one investment, I need to have a diverse portfolio of assets. Holding these multiple assets provides me exposure to a number of potential winners and losers across the market, a market which has trended up over time regardless of the firms within it. Investing in passive index funds, which track the broader market, accomplishes this goal.
Many investors go a long way to establish an edge, and thinking you have one when you really don’t might undermine your returns. Sometimes having humility and avoiding mistakes can lead to a better investing outcome.
Following that notion, I think about smart investing in a way which minimizes mistakes instead of pursuing maximum gains. Because I don’t like taking on uncompensated risk, I think a portfolio requires a healthy balance of risk and reward as well as exposure to many different securities.
I keep the following items in mind when investing:
- Steer clear of any and all avoidable risks. Don’t take on unnecessary risk when the probability of a better investment outcome doesn’t exist
- Be cautious and highly skeptical of your conclusions and whether you feel you possess some edge. It is much more likely you don’t have one when compared to the deep pockets spending endless time and money seeking the next edge
- Minimize the number of times you touch your portfolio. High portfolio turnover in search of better investments more often than not leads to negative consequences for your returns
- Avoid big mistakes. You stand to gain a lot more by doing nothing than thinking you have some edge (when you really don’t) and acting upon it
All of these requirements lead me to one investing avenue: investing in passive index funds.
OppLoans: Would you say millennials these days have less chances to invest than previous generations? Is it possible for those living paycheck to paycheck to consider investing?
Riley: Millennials have more available avenues to invest than any generation that came before them. In addition, they face some of the lowest barriers to entry to begin investing thanks to many services which require no account minimums. Numerous applications have automated the investing process by taking deposits of any size and allocating them to assets which meet an investor’s stated financial goals.
The most important component is to start investing sooner rather than later, no matter the amount you can afford. Contributions do not need to be large to have an impact over time. To escape living paycheck to paycheck from an investing standpoint, beginning your contributions early can provide the greatest chance for financial success.
However, despite these powerful financial tools, knowing your financial goals is equally important. If you do not know what you want out of your money, it becomes difficult to plan accordingly. By establishing clear investing objectives and utilizing investing applications accessible to all, this can make for a concrete step toward financial freedom and no longer living paycheck to paycheck.
OppLoans: Thanks for speaking to us. Before you go, in a sentence or two, what is one piece of financial advice you wish you had known that you didn’t when you were entering adulthood?
Riley: I’d like to have known the importance of buying property sooner. I sat on the sidelines for five years deciding between buying a condo vs. apartment living. Had I bought a condo sooner and avoided paying rent, I’d have saved money on rent and experienced more home price appreciation.
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