6 Ways Millennials Make New Money Become Old Money
Over the next 20 years, Baby Boomers and the Silent Generation will pass along all their worldly wealth — a massive $90 trillion total. And most of it will go to their Millennial heirs.
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Of course, Millennials have their own opportunities to build wealth for themselves too. You don’t see many Boomer YouTube celebrities, after all.
So how can younger Americans steward their wealth and potentially leave behind an inheritance for their own children?
1. Don’t Leave It in Cash
Inflation will eat away at your wealth if you leave your money to molder in cash savings.
No, really. Over the last 50 years, inflation would have left your cash worth less than 16% of its original value.
You do need a little cash within easy reach for your emergency fund. Everything else should be invested to compound and work for you while you sleep.
2. Diversify Your Investments
People who had all their retirement savings invested in Enron learned the hard way why they should have diversified their portfolios.
The world is an unpredictable place. You can’t predict every new trend or market correction.
Instead of trying to get clever, just spread your money among many different investments. That includes stocks at every market capitalization, every sector of the economy, every region. It includes bonds, real estate and possibly alternative investments.
Fortunately, it’s easier to diversify than you think — even if you don’t know a thing about investing.
3. Invest on Autopilot
Consider using a robo-advisor to manage your investments for you.
You fill out a questionnaire so that the algorithm can assess the best portfolio for your needs and goals. Then, it invests your money in an appropriate portfolio, periodically rebalancing it and perhaps even harvesting tax loss for you.
Robo-advisors can also automate your savings, moving money at regular intervals from your checking or savings account to your investment account.
Best of all, several are free, and the rest tend to be cheap. And when you reach a certain level of wealth, you can then hire a human or hybrid investment advisor to handle your more complex needs.
4. Get Strategic About Tax Planning
The more of your money that Uncle Sam pockets for himself, the slower your wealth will grow as a working adult. And the faster it shrinks as a retiree, the faster it will shrink.
Start with the low-hanging fruit, and take advantage of employer-matching contributions to a retirement account. Then consider maxing out your contributions if you can afford it, especially in a Roth account since your money will have several decades to compound tax-free before retirement age.
As you build wealth, consider exploring investments with their own baked-in tax benefits. Real estate has great tax advantages, and you don’t have to become a landlord to access them. Look up the “lazy 1031 exchange” for private equity real estate syndications for a little-known tax strategy.
5. Get Adequate Insurance
You could build a nest egg of a million dollars, and then lose everything if you suddenly develop a health condition that costs a million and one dollar to treat.
The same goes for property insurance and other types of coverage. The wealthy find an insurance expert they can trust to recommend appropriate policies, so they neither under — nor overinsure themselves.
6. Create an Estate Plan
What happens to your wealth if you kick the bucket tomorrow?
You need an estate plan if you want any say over the matter. That starts with a will and possibly a living trust, although it may not end there.
Speak with an estate planning attorney, or at the very least create an estate plan through an online platform to hold you over until you can hire an attorney to create one.
Make sure your loved ones are provided for, and the right assets get earmarked for the right people and purposes.
Final Thoughts
We’ve all heard stories of lottery winners who went broke within a few years of hitting the jackpot. And athletes, and entertainers, and so on.
They went broke because they didn’t know how to manage their money. Don’t make the same mistake.
Learn everything you can about personal finance and investing. If you need specific help, hire experts. It’s not as complicated as it sometimes seems, and you can keep it simple by following the fundamentals outlined above.
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This article originally appeared on GOBankingRates.com: 6 Ways Millennials Make New Money Become Old Money
