Are you a millennial? Then we need to talk about why you should be investing and how you can start today.

Millennials are those born between the early-1980s and mid-1990s. Made up of about 83 million people, our generation is the best-educated and most diverse, but we’ve gotten a tumultuous start to our financial adulthood.

Many millennials entered the job market during and immediately after the 2007-2008 financial crisis. In other words, we got off to a rough start.

Because of that, it should come as no surprise that millennials are a bit leery of putting their money into the stock market. Data shows that more than two-thirds of millennials have nothing invested for retirement. 

It’s time for us to fix that. In this article, I’m sharing a few simple steps to help you start investing as a millennial.


How to Start Investing as a Millennial


Why you need to be investing

The first question you might be asking yourself is why you need to invest. After all, isn’t investing risky?

Investing is the most effective way to build wealth and help your money to grow for the future. It’s a way of putting your money to work to make passive income so that you aren’t relying on trading time for money. 

Another important reason to invest is that without doing so, most people would never be able to retire. It’s only because of compound interest that invested money grows large enough for people to retire. 

Finally, investing helps protect your money from inflation. Many people feel safest with their money in a savings account. But because of inflation, money in a savings account is losing its value every year.

The Federal Reserve has a target inflation date of 2% each year. And I think we all know that throughout 2022, it’s been far higher, meaning your money is losing value more quickly.

In most cases, you’d be hard-pressed to find a high-yield savings account that pays that much as the rate of inflation, no matter what that rate is. As a result, your money becomes less valuable each year.

But what happens when you invest that money? According to the Securities and Exchange Commission, the stock market has an average annual return of 10%. Not only are you protected from inflation, but your money is actively growing each year.



The reason investing is so effective is because of the miracle of compound interest. In other words, your money makes money. Then, the money you made also begins to make money.

Let’s look at a quick example:

Let’s say you were to save $250 per month each year from ages 25 to 65. By the time you retire, you will have $120,000.

But what if you put that same $250 per month into the stock market with a 10% return? You’d retire with about $1.34 million. So you can see how important compound interest is.

To figure out how much you could have in the future by investing in the stock market, you can use a compound interest calculator.


Investing vs. trading

One of the biggest misconceptions I hear from millennials is that they hear they should be investing, and they think that means opening a brokerage account and buying individual stocks. So before we dive in any further, I want to clarify what I mean when I say investing.

Trading generally refers to buying short-term investments with the intention of selling them after a short time for a profit. Traders usually try to time the market, selling before a stock price falls and buying before it rises.

For many people, day trading is a full-time job. It takes an incredible amount of research and understanding of the stock market, and most people are still ultimately unsuccessful. Unless you have the time and understanding to do it properly, I would avoid trading.

Investing, on the other hand, is a long-term strategy. It involves buying and holding investments over many years for the purpose of growing wealth. Investing is less about timing the market and more about time in the market. 


Investing for retirement

The most important type of investing that everyone should start with is investing for retirement. In fact, you may already be investing without realizing it since the first place many people start investing is in their employer’s 401(k) plan.

If your employer offers a 401(k) match, make sure you’re investing at least enough to get the match. If you have more room in your budget, you can increase your contributions even more.

Outside of an employer 401(k), another great way to invest is through an individual retirement account (IRA). This option offers more flexibility and a way of diversifying your tax advantages.

There are also plenty of options to save for retirement when you’re self-employed, including a SEP IRA and Solo 401(k).

Not sure how much you should be investing for retirement? Personal Capial’s retirement calculator is my favorite way of figuring out much to set aside each month to live comfortably during retirement.


Investing for financial goals

Your first priority should be investing enough to reach your retirement goals. But if you’re doing that and still have room in your budget, you might consider investing for other financial goals as well.

As a general rule of thumb, you shouldn’t invest any money that you plan to need within the next five years. The stock market can be volatile, and when you invest your savings, you risk seeing your portfolio’s value decrease substantially right before you need it. For goals less than five years out, you can put your money into a high-yield savings account and earn a bit extra.

So what does this look like in practice?

Let’s say you’re saving for a home you plan to purchase in about three years. The best place to save that money is in a savings account. But that dream vacation home you plan to purchase in 10+ years? Feel free to save for that in a brokerage account.


Investing while paying off debt

Many of the people I work with are in the process of paying off debt. And many find themselves wondering whether they should be investing while they’re paying off debt.

There’s a little more that goes into it, but the short answer is: Yes!

No matter what, I always recommend investing at least enough to get any 401(k) match your employers. Once you’re doing that, your next priority should be to pay off any high-interest debt, such as credit cards or personal loans.

Once you’re left with only low-interest debt like student loans, you can split your money between investing and paying off debt, or you can decide to go all in on one. Yes, the debt is important. And yes, there’s a huge emotional burden that comes with carrying debt.

But ultimately, the return you can expect to get in the stock market is higher than the interest rate you’re paying on your debt. And the more time your money has to grow in the market, the better off you’ll be during retirement.

When it comes to investing for other goals beyond retirement, that really comes down to what you’re comfortable with. Some people are more worried about getting their debt paid off as quickly as possible, while others are more focused on building wealth.


Determining your asset allocation

One of the biggest questions people have when it comes to investing is what they should actually invest in. 

The first thing to know about asset allocation is that you should be diversifying your portfolio. In other words, don’t put all your eggs in one basket.

First, you can invest across asset classes, meaning you put your money into a variety of different assets. For example, rather than just investing in stocks, you would also invest in bonds and other securities.

You should also diversify within asset classes. For example, rather than buying stock in just one company, you’d buy stock in many companies across various industries.

The idea of choosing your investments might be overwhelming, but there are tools to make that job easier. Index funds, mutual funds, and ETFs are investment vehicles that hold many different assets. When you invest in the fund, you’re investing in every security in the fund.


When we land on this topic, many people want to know what are the best investments for millennials. I can’t answer that question for you, and neither can anyone else on the internet. The best investments for you depend on your financial goals, risk tolerance, and more.

Personally, I rely on both a robo-advisor and diversified index funds to help reach my various financial goals. The same strategy may or may not be right for your goals.


Choosing the right investing platform

Another important decision you’ll have to make is the investing platform you use. If you invest through your company’s 401(k), you won’t have to worry about this. But if you’re investing in an IRA or a taxable brokerage account, you’ll have to decide which type of account is right for you. 

There are two primary options to choose from:

  • Traditional brokerage firm: With a traditional brokerage firm, you’re responsible for choosing your own investments. This option is ideal for those who want to be hands-on investors. Popular brokerage firms include Vanguard, Fidelity, and Schwab.
  • Robo-advisor: For those who don’t want to choose their own investors, a robo-advisor is a great alternative. You answer a few simple questions about your goals and risk tolerance. Then the robo-advisor chooses your investments for you. My favorite robo-advisor is Betterment.


Final Thoughts

For many millennials, the idea of investing feels overwhelming. People who are new to the investing game consider it to be too risky, often compared to gambling.

But long-term investing and gambling couldn’t be more different. Additionally, investing is one of the most effective ways to build wealth and financially prepare for the future.