If you do not remember a time before the internet or social media, then you are likely to belong to Gen Z or the demographic group born from the mid-1990s to the early 2000s. Gen Z is followed by Gen Alpha or those born after 2010.
Today, I’d like to encourage Gen Zers to take a step aside from your daily life and contemplate your retirement, which may be in 40 years or more. Difficult, I know, but do try.
What money may mean to Gen Z
People’s approach to money and personal finance partly affected by their generation.
Gen Z mostly grew up during the recession of 2008/09. Many of them learnt about the world of money as their parents might have dealt with difficult financial issues.
As Gen Z gets ready to enter the workforce, they may have first-hand knowledge of the prospect of crippling student debt, difficulty of finding permanent, well-paying jobs, property prices that may seem out of reach, high household costs and an uncertain economy coupled with political issues such as Brexit.
Gen Zers are also possibly observing their elders who realise that the State Pension will likely not be enough to ensure a comfortable retirement. It currently stands at £8,767 per year.
Yet paying close attention to several investing decisions could mean retiring a millionaire versus having financial worries in older age. If I could offer my younger self only one piece of financial advice, it would be: start saving and investing early, that is, today!
Why investing now is crucial
Let’s say you’re 25 with £1 in savings. If you invest £3,600 per year (deposited at the end of the investing year) and earn 8% annual interest, you’ll have £932,625 at the end of 40 years.
On the other hand, if you wait to start investing until you are 30, you will have £620,355. And if you wait another five years until you reach 35, at the end of 30 years, your account balance will only be £407,829, or less than half of what you could have had by investing a decade earlier.
The difference is due to the power of compound interest. This has a snowball effect on personal savings. As time goes on, interest leads to more money, over and over again.
The Foolish takeaway
At The Motley Fool, my colleagues provide detailed coverage of share investing and retirement planning. They highlight that over time, the broader stock market returns about 7% to 9% annually on average.
If you are new to the world of investing, then you could start with buying into a FTSE 100 tracker fund.
In 2019, the FTSE 100 is projected to return a dividend yield of about 4.5%. This robust dividend yield has helped support the index throughout the uncertainty caused by Brexit as well as global trade wars. Any capital gains delivered by the index would be an added bonus on top of the dividend.
Younger investors could possibly benefit from diversifying some of their holdings into tech shares. A fund to consider could be the Scottish Mortgage Investment Trust, which is heavily invested in tech shares, such as Amazon in the US and Alibaba in China.
On a final note, if you are the parent or loved one of a Gen Zer, you may want to encourage them to improve their financial literacy as well as to save and invest early on.
