The Transfer of Wealth: 5 Financial Tips for Your Millennial

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If you have raised – or are raising – a millennial, it is possible he or she will control significant financial assets. Is your millennial poised to manage a substantial level of assets in the event of a handoff?

According to a Pew Research Center study (based on 2015 population estimates), the number of millennials (those aged 18-34 in 2015) have surpassed the baby boomer generation and are now the largest living generation in the United States.

From a financial perspective, millennials will be the recipients of an anticipated wealth transfer (e.g. inheritances) that is expected to top $30 trillion. In addition to their own accumulated assets, this wealth transfer will pose challenges for millennials—and it further increase the urgency of gaining investment knowledge. If the millennial in your life is just beginning to invest or you anticipate they will be inheriting a significant sum, you may help them find valuable insight by looking at the backgrounds of wealthy millennials and some of the challenges they are facing today.

High Net Worth Millennials Today

According to a recent Oppenheimer Funds survey that focused on today’s ultra-high net worth millennials, while they are generally conservative investors, they are becoming highly experienced and well educated regarding investments—and they are increasingly willing to take more risks.

Wealthy millennials are also values-minded, and they plan to make changes to their family investment strategies that reflect those personal values. They seek positive changes in society, in general, and they are willing to incorporate personal values-based changes into their investment portfolios to support their personal beliefs.

These millennials are also very interested in seeking advice from financial professionals when they perceive they have a knowledge gap. However, they are careful about who they trust, and they express reservations about the value advisors provide and about their motivations. Some even take a cynical view of fees and product recommendations. This is where fiduciary financial advisors – those who are legally obligated to act in their clients’ best interest – can often make an important impact on whom millennials choose to trust.

Wealthy Millennials & Investments

So how do the proclivities of wealthy millennials impact how you teach your millennial to invest? If your child is just starting out or has a modest nest egg, you can help them develop effective wealth-management habits. Becoming engaged now, through learning more about investments and seeking a long-term relationship with an advisor, will leave them better prepared to make appropriate decisions if their own savings or assets accumulated through wealth transfer (such as an inheritance), is significant.

Here are five tips to pass on to your millennial that will help them manage their financial lives in a smart, strategic way:

  • Make saving a habit: The basic key to investment success is to start sooner rather than later. The earlier you start saving, the more time your money has to grow. Look at the chart below, courtesy of the U.S. Department of Labor, for an illustration of the profound difference time makes when you are accumulating wealth. As you grow your portfolio and learn to make increasingly sophisticated investment decisions, you begin to prepare yourself for a time when you may need to make critical financial decisions involving a lump sum of money—such as an inheritance.
  • Know how much money you need to retire and work with a financial advisor to create a plan that accomplishes your goals: Experts estimate that you will need at least 70% of your preretirement income to maintain your standard of living when you stop working. However, few younger investors have considered how much they will need in retirement. Establishing a relationship with a trusted financial advisor who can help guide your success puts you one step closer to understanding and, therefore, achieving your goals
  • Control your anxiety: Market volatility is a source of anxiety and insecurity for many investors—particularly millennial investors who remember the Great Recession. But remember that volatility is the enemy of short-term plans rather than long-term goals. If you have lots of time in the market, general market movements—even severe ones—are not particularly threatening to your long-term plan. Again, a relationship with a financial advisor can provide counsel if your anxiety level gets too high.
  • Diversify: Put your savings in different types of investments. And understand how your employer-sponsored retirement plans are invested. By diversifying your assets, you are more likely to reduce risk and improve return. Your investment mix may change over time, depending on several factors, including an inheritance. A trusted financial advisor can help you make the changes you need as your life progresses.
  • See a collaborative, holistic approach to investing: Many millennials do not believe that the financial services industry effectively represents their interests. However, there are many choices within financial services. If you know what you want, you can find both financial advisors and tech-based solutions that will provide answers that specifically fit your needs. The appropriate tools, education and assistance are individual choices that are too important to ignore.

The Takeaway

Millennials are poised to control a staggering level of wealth in the relatively near future. Those who get an early start, educate themselves, and establish trusting relationships with financial professionals are more likely to successfully manage their wealth and attain financial freedom. Financial security and knowledge go hand in hand. Be prepared.

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Amin Dabit, CFP®

Amin Dabit, CFP®

Amin Dabit is a Senior Vice President and Financial Planning Manager with Personal Capital. Along with the EVP of Portfolio Management, Amin helps lead Personal Capital’s financial planning experience and advice. Amin brings over a dozen years of experience in private wealth management and financial planning. Amin works with the advisory team to identify and establish strategies for reaching clients' financial goals by providing comprehensive, customized financial advice designed to improve their financial lives.
Amin Dabit, CFP®

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Disclaimer. This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.