The 3 E’s of Successful Investing for Millennials

The 3 E’s of Successful Investing for Millennials

Why money should be the last concern when it comes to millennial investing

When it comes to money and investing, millennials are a different beast than generations that came before them.

Their attitudes towards investing were heavily shaped by the rapid change of society and technology, and the collapse of trusted institutions as they grew up. As David Brooks recently wrote in “The Atlantic”:

The emerging generations today enjoy none of that sense of security. They grew up in a world in which institutions failed, financial systems collapsed, and families were fragile. Children can now expect to have a lower quality of life than their parents, the pandemic rages, climate change looms, and social media is vicious. Their worldview is predicated on threat, not safety. Thus the values of the Millennial and Gen Z generations that will dominate in the years ahead are the opposite of Boomer values: not liberation, but security; not freedom, but equality; not individualism, but the safety of the collective; not sink-or-swim meritocracy, but promotion on the basis of social justice

(“America is Having a Moral Convulsion”, October 2020)

In a recent article by “The Wall Street Journal”, millennials report the following:

  • They feel more financially burdened than their parents and grandparents

  • They are putting off big decisions like buying a home because of uncertainty

  • “More than half of millennials surveyed feel overwhelmed by financial obligations, compared with 39% of Gen Xers and 31% of boomers”

  • “Building up an emergency fund is a focus for 60% of those between the ages of 23 and 38, compared with a little over half of both prior generations”

  • “Mistrust of financial institutions runs through 37% of millennials surveyed, compared with 29% of Generation X and 22% of baby boomers”

  • And perhaps most important…”half of millennials say they want to invest but have no idea where to begin, compared with 32% of Generation X and less than 20% of baby boomers”

(“A Guarded Generation: How Millennials View Money and Investing”, March 2020)

All and all, this adds up to a generation that is on the verge of a $24 trillion wealth transfer from the Baby Boomers to them with no real financial IQ, no plan and even a fear of investing, and a scarcity mindset that tells them they won’t have enough money for emergencies if they do invest.

“How much money do you think you need to start investing?”

That’s the question the personal finance app Twine asked millennials in a 2018 survey, and the answers were telling.

According to the survey, “46 percent of millennials believe they need at least $1,000 to start investing. Another 17 percent believe they need at least $10,000 before they're able to invest.”

Over half of those surveyed thought they didn’t have enough to start investing.

Given all I shared about the millennial generation and their view of money, it’s no wonder that many millennials answered this way and don’t invest.

For many folks, even an extra $1,000 seems like a lot of money. For many in the millennial generation, it might seem insurmountable. But the reality is that the amount doesn’t matter…mindset does. Those today that think they need $1,000 will tomorrow think they need $10,000.

Why?

The problem is not money, it’s confidence.

Asking how much you need to start investing is the wrong question

There’s no doubt that investing is the key to attaining financial freedom. But the truth is that if you don’t have a high financial IQ, it won’t matter how much money you have. In most cases, you’ll simply be wasting your money on bad investments.

When millennials who want to invest ask me how much money you need to start, I tell them to stop worrying about the money and start worrying about gaining financial knowledge. By doing that, you’ll understand both how to find investments that will attract money and that it doesn’t take money to get started investing.

My first investment, a condo in Hawaii, was financed through a credit card. I wouldn’t recommend that as a standard strategy for most folks, but I had done the work to study hundreds of properties, understood what a good investment looked like, and had a solid financial model that made the risk worth it. It turned out to be a very successful investment and it cost me nothing out of pocket.

The reality is that it’s not hard to get started investing. You simply need a passion for learning and be willing to put your learnings into action.

How to become a successful investor

When I was younger, my rich dad said to me, “The rich get richer partly because they invest differently than others. They invest in things that are not offered to the poor and the middle class. Most important, however, they have a different educational background. If you have the right financial education, you will always have plenty of money.”

Rich dad often spoke of a simple formula for investing success that he called the three E’s.

  1. Education

    Most people understand reading, writing, and arithmetic. But those who are financially successful also have a different kind of education—financial education.

    Financial education is the foundation for building wealth. You know you are financially smarter when you can tell the difference between:

    • Good debt and bad debt

    • Good losses and bad losses

    • Good expenses and bad expenses

    • Tax payments versus tax incentives

    • Corporations you work for versus corporations you own

    • How to build a business, how to fix a business, and how to take a business public

    • The advantages and disadvantages of stocks, bonds, mutual funds, business, real estate, and insurance products, as well as the different legal structures

    If you want to learn more about the basics of financial education, read my post, “15 Must Have Financial Education Lessons to Gain True Financial Literacy.”

  2. Experience

    A successful investor has a plan, is focused, and plays to win. This doesn’t mean that you won’t fail. Failure is part of the game. What separates the winners from the losers when it comes to investing is the ability to take the experiences, both successes and failures, and to learn from them to get better and better. That is what I mean by experience.

    Most people do not learn from their successes and failures. Instead, they jump from one thing to another hoping one will stick. Hot tips don’t make you rich, experience does. And experience is the surest way to build the confidence you need for long-term investing success.

    For millennials who want to start investing, this is especially important. If you are like many in your generation who are fearful and have a scarcity mindset, you will never be a successful investor. In order to become a successful investor, you need to try, fail, learn, and do it all over again until you’ve won the game. The best part is this doesn’t require trust in institutions like big banks and Wall Street. It simply requires trust in yourself. And that is the most important trust you can build.

  3. Excess cash

    Like the millennials who were surveyed by Twine, when most people hear they need excess cash to be a successful investor, they check out. I often hear them say things like, “I’m living from paycheck to paycheck,” or, “I’ll never have enough money to really invest well.”

    The problem is that people hear excessive cash instead of excess cash.

    When Kim was first starting out investing, she bought a small house in Portland, Oregon. She did not have a lot of extra money on hand. But she did have a great financial education, a plan, and was building her experience. She was able to save up the money needed for the down payment, and purchase the property. It cash flowed about $25 per month.

There is nothing wrong with starting small. It is through small investments that are successful that you can grow to larger and larger investments. Today, Kim owns thousands of apartment units across the US.

How’d she get there?

It started with financial education, continued with experience, and was kick started by wisely investing a little bit of excess cash. You can do the same, starting today.

Original publish date: October 09, 2018