Millennials are relatively good savers. What they are not so hot at, surveys have shown, is investing. Many are frightened or confused by the topic. Here are five critical moves millennials can make to overcome their investing anxieties:
Get an education
There are plenty of resources to guide you through the basics; you just have to put in the time. Khan Academy is a good place to start, as is NerdWallet's guide on how to invest in stocks. Morningstar has a good, if slightly dated, investing classroom, and online brokers often have beginner-focused materials on their websites.
Say hello to risk
In investing, more risk means the potential for more reward. An all-stock portfolio had an average annual return of 10.1 percent between 1926 and 2015, according to a study by Vanguard. A 2015 study from BlackRock found that millennials might have as much as 70 percent of their money in cash, meaning a savings account, a pillowcase, old sneakers. At today's historically low interest rates, it's all roughly the same.
Take that risk through index funds
At this age, you should have most of your long-term savings invested in stocks. The best way to do that is not by dumping your money into Apple stock, but with low-cost index and exchange-traded funds. Those funds pool investor money to buy many different investments in one swoop.
Put a lid on fees
You can't control the stock market, but you can mostly control fees charged by your index funds (called expense ratios), administrative fees in your 401(k) and transaction fees incurred when you buy and sell investments. Keep transaction costs down by limiting unnecessary trading and using commission-free and no-transaction-fee funds. If an index fund's expense ratio is more than 0.25 percent, you can likely do better.
Use a Roth IRA or a Roth 401(k)
With a Roth IRA (check contribution limits to gauge your eligibility) or the Roth version of your 401(k), if offered by your employer, you pay taxes now and spare your future self that burden. That usually makes sense for young professionals whose income is lower now than it will be later. Check out a Roth IRA calculator to see if the approach adds up for you.
NerdWallet