Millennials Choosing to Rent

According to several recent studies the younger generation today would rather rent than own their home.  True, the recession has done a number on their job opportunities.  Plus, many are busy paying down debt and working hard to make themselves ready to own one day.  But unfortunately we all know tougher mortgage credit requirements are eliminating “too many” good, potential home buyers.

What’s alarming is that a greater number that can buy are simply choosing to rent.  And the main reason… well, you guessed it: they are saying that they aren’t ready to settle down.  They possess a strong desire to travel and explore before they get more “serious” with life.

So what’s the concern? Well, a couple things come to mind.  First, the obvious negative effects on our economy from less Americans owning homes.   Second, if this group chooses to rent for a long period of time before they purchase a home their personal wealth could suffer long-term.   With the time-value of money principles working against them and delaying this traditionally effective form of saving (building equity) through home ownership at young ages, some of this generation may never replenish the cost of such a delay.

Thoughts on Investing…

Earlier this week I held an enrollment meeting for a 401(k) retirement plan and several new employees attended.  Most were young, in their early to mid-20’s.  As the meeting progressed, several good questions were asked about the plan.  Then as we discussed investments in the plan, and fluctuations in a typical market cycle, several of the younger employees began to question if investing was a good thing.  That’s when one employee, just re-hired at age 61, spoke up and shared some of his experience with investing.  He told them, “In 2001 and 2002 I lost half of my account, but I kept investing and within 2 years I was back at my highest account value plus some.”  A few of the younger heads popped up and began to listen closer to him.  He also shared a similar experience in 2008.  He finished by telling them to not only get into the plan and “save now” while they were young, but to “stick with it” even when times get rough.  He told them “it will pay off in the long run.”  I added some additional thoughts, but really didn’t need to say much to his wisdom – the point was made. 

On the drive back to the office I began to think about the meeting.  I thought about a friend who calls every time the market goes through a large correction and says “it’s a good opportunity to buy while the prices are low.”  He’s in his 30’s and understands that time is still on his side.  He also doesn’t panic and keeps a good perspective on things as the market gyrates.  Disciplined investing does take time.  It also can certainly have its pain along the way.  Yet as you move through these experiences you learn, and over time can grow.

 I’m reminded of a verse that says, “For the moment all discipline seems painful rather than pleasant, but later it yields the peaceful fruit of righteousness to those who have been trained by it.” (Heb. 12:11)  In much the same way, this can be true with investing.  For the moment (in the short term) we sometimes feel pain… yet if we stick to our plan, we often may see a good yield down the road (in the long term).

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Long-term perspective: Essential for athletics and investing

Good insight from Steve Holman of Vanguard that gives a view on maintaining a long-term perspective and the importance of delaying gratification.  He also reminds us that “doing the right thing means having clear goals, choosing the right balance… and investing for the long term.”

Long-term perspective: Essential for athletics and investing

If you’re looking for insight on investments and personal finance, you could do a lot worse than asking a long-distance runner.

Vanguard is a second career for me. After college, I had the great fortune to compete as a professional distance runner. Yes, there are such things as professional distance runners; however, our rewards tend to be more spiritual than financial. After participating in the Barcelona Olympics for the United States in 1992, and competing across the globe as a world-ranked miler for almost ten years, I “retired” at the age of 31.

Whether you’re 31 or 65, retirement isn’t an easy adjustment. Many of us experience a profound sense of nostalgia and melancholy for our former lives. We worry about what lies ahead. Like many retirees, it took me a while to figure out my next step. Ultimately, I decided to go to business school.

While I had been a Vanguard client for a number of years, making a career here was never a serious consideration until I spent time here as a summer intern while I was in grad school. As it turns out, many of the defining characteristics of my athletic career directly linked to Vanguard’s investing philosophy.

Long-term perspective: Distance runners know that success is never a product of a single run; it’s the cumulative effect of remaining committed, consistent, and focused over a long period of time. At times, it’s hard to remain diligent for a benefit that seems so far off in the future, but the rewards when you achieve these goals are immense. Investors, too, are often rewarded for remaining disciplined and maintaining a long-term perspective.

Delayed gratification: Getting up at 6 a.m. to jog isn’t “fun.” Pushing through the last few miles of a tough workout is rarely enjoyable. Runners know that you have to make choices and sacrifices in the short term if you hope to improve fitness over time. Putting money away in savings means you’re not consuming something cool now, and that can be tough. But a less expensive car now could mean a happier retirement later.

No quick fixes: I’m proud to say that I never used performance-enhancing drugs during my athletic career. I could have doped and run faster, maybe even got away with it, but it wasn’t the right thing to do. Instead, I got up every morning and put in the miles, year after year. It’s easy to be seduced by portfolio-enhancing alpha strategies and esoteric alternate investments. Occasionally these things work in the short run, but usually they don’t, and sometimes people go to jail. Doing the right thing means having clear goals, choosing the right balance of low-cost funds, and investing for the long term.

And as I learned long ago, hard work gets results—even when you can’t see the finish line.

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