Investing and the millennial educator

According to Statistics Canada, millennials now make up the majority of the Canadian workforce.

That means if you’re an education member born in the ’80s and ’90s (broadly speaking), you now represent 38% of the Canadian workforce (compared to Generation X at 32% and Baby Boomers at 30%).

While, statistically, millennials are rather prudent when it comes to saving (with 4 in 5 putting money away)—less than half of millennials are investing.

So why are the majority of millennials choosing not to invest?

A study conducted by the Ontario Securities Commission discovered the following, among other reasons:

• Millennials feel they don’t have enough income to invest
• They are worried about losing money in the financial markets
• They are dealing with other priorities first (i.e. paying off debt)
• There is a lack of general knowledge about investing

No matter what generation you fall under, you don’t have to let the above reasons dissuade you from investing—because there is always a solution (and we can help you find it).

For instance, if you don’t think you have enough disposable income to invest, consider taking a hard look at your spending habits.

Case in point, did you know that online shopping sales have surged in Canada by over 99% over the past few months? While the majority of this spending is most likely people ordering essential items (due to the lockdown), more time online can also lead to a slippery spending slope if you’re not careful (so-called ‘boredom purchases’, for example).

Then there are purchases of convenience, such as using food apps instead of cooking.

Canadians are spending an extra $50 to $100 a month, on average, in order to satisfy their appetite for takeout/ordering in—with millennials leading the way. In fact, 2 in 5 millennials admit to getting takeout or ordering food through apps at least once a week, compared to 1 in 5 in other age groups.

Now instead of spending $100 a month on takeout, let’s say you decided to invest that money.

Thanks to compound interest, investing subsequent contributions of $100 on a monthly basis would grow your money exponentially. As for how much it would grow, that all depends on your investment(s) of choice, your rate of return, and your timeline.

For example, assuming you earned a modest 3% return on your investments (and that return remains constant over time), your contributions of $100 a month would yield*:

• $14,109.08 at the end of 10 years
• $33,012.28 at the end of 20 years
• $58,519.37 at the end of 30 years

Naturally, the more money you contribute to your investments each month and the longer the timeframe, the more those earnings would benefit from the power of compounding.

Find money in your own budget to start investing with 5 tips to save up to $500 a month.

If it’s the thought of losing money that keeps you from investing, GICs offer you the peace of mind of guaranteed returns.

Guaranteed Investment Certificates (GICs): Available in a variety of terms (1-year, 2-year, 3-year, etc.), GICs offer a guaranteed interest rate on the funds you put in. The longer the term, the more time your GIC investment will have to grow and mature at its guaranteed rate.

One common myth when it comes to investing is that you should be afraid of risk. However, when dealing with other types of investments where returns are not guaranteed, you can (and should) assess and select the level of risk you’re comfortable with.

While most investments have a certain amount of risk associated with them, your goal should be to strike a balance between risk and return. Assessing your own level of risk tolerance will depend on factors such as your investment goals (i.e.. saving up for a down payment on a home or adding to your pension income in retirement), your time horizon (the length of time you are investing for in order to reach your savings goals), as well whether you prefer a guaranteed return or the potential for higher returns from investments that may see higher day-to-day fluctuations.

A good rule of thumb to consider is that the longer your time horizon, the more risk you can actually assume because you’ll have more time to recover from a potential loss.

Learn how to put your financial plan into motion.

Types of risk—and more importantly, how to mitigate them:

Type of risk	Description	Investment(s) affected	Solution
Market risk	The possibility of downward changes in the overall financial markets.	Equity and Fixed Income Investments	Diversify investments over various categories (stocks, bonds, cash, etc.). Holding assets from different categories reduces the chances that all investments will be down at the same time.
Inflation risk	The chance that cash flow from an investment won’t be worth as much in the future because of changes in purchasing power caused by inflation.	All types	One way is to ladder your bonds, a multi-maturity investment strategy that diversifies bond holdings within a portfolio. It reduces the reinvestment risk associated with rolling over maturing bonds into similar fixed-income products all at once.
Credit risk	Also known as ‘default risk’, it reflects the possibility that the issuer of the bond or other debt-type instrument will not be able to carry out its contractual obligations – potentially rendering the investment worthless.	Fixed income securities	Keeping maturities short, diversifying investments among various companies, and investing in institutions and issues with the highest credit rating are all methods that can be implemented.
Liquidity risk	This risk happens when capital is locked up in assets that are difficult to convert to cash when it is required to pay current bills or emergency spending.	All types	Choosing investments traded on an active market and limiting investments to funds not needed for current expenses.

In the early part of your education career, it’s not so much about focusing on investment returns, but getting into the discipline of putting money away.

This may all seem difficult to do, especially during a time when one is typically on the lower end of the pay grid. But contributing even a little (and doing it early) can go a long way towards growing your earnings for your future goals.

The sooner you start investing, the more you’ll benefit from the earning power of compounding.

Since decent earnings from compound interest require a sufficiently long timeframe in order to materialize, investment returns really matter most towards the end of your time horizon when your amassed investment savings have grown. Of course, the better your investment returns, the faster your money will grow.

So—are you now ready to start investing?

Before you make any investment decisions, make sure to enlist the professional advice of a Certified Financial Planner with an educator-specific point of view.

Having served education members since 1975, Educators Financial Group knows the unique elements that make up your financial world. From pay grids to pension plans, we can help you uncover ways to maximize your cash flow so you can start building an investment portfolio that works for you.

Have one of our financial specialists contact you to put your financial dreams into motion, today!

Sources:
‘Missing Out: Millennials and the Markets’ – Ontario Securities Commission
Statistics Canada
https://globalnews.ca/news/7213764/coronavirus-online-shopping-canada/

*Potential investment earnings calculated using a compound interest calculator, assuming regular $100 monthly contributions earn a modest 3% interest over the duration of the investment term