How my millennial friends invest (part 1 of 4)
Ever wonder how your peers invest and manage finances? I’m interviewing 100 of my Facebook friends on the topic. Here are the first 25 interviews.
In this series, I’ll take you through data I’ve collected from interviewing my Facebook friends about investing and personal finance, starting with the first 25 people (this blog post).
Specifically, I’ll talk about:
- Who I’m interviewing and why
- How they got started (including platform choice & initial deposit)
- Why do you invest?
- Where income goes (expenses vs. savings vs investing)
- Investing strategies
- Advice for others
As I continue to publish this series, I’ll update the graphs, add new insights, and add new sections for any new findings — all the way to 100 interviews!
Who I’m interviewing and why
Did you know that only 16% of millennials are estimated to be financially literate, according to a study conducted by the TIAA institute under the Global Financial Literacy Excellence Center (GFLEC)?
With platforms like Robinhood and WeBull making personal investing far more accessible to young people than ever before, 20-something year olds like me have been struggling to learn the world of finance.
Personally, I come from an immigrant background — my parents don’t invest, so I’ve had to figure it out on my own. I understand the anxiety and confusion that new investors could face when it comes to managing their financial future.
Though I started these interviews to get feedback on software I’m building to track my Robinhood investments, I decided that everyone could benefit from learning from what others are currently doing — hence this blogpost!
How they started investing
My first question was always, “How did you get started?”
44% began investing after being employed at their first “real” job. The interviewees stated that they had a combination of employer-offered 401(k)s, IRAs, and individual investment accounts.
24% said they were influenced by friends or co-workers. Many had stated that they were peer-pressured into investing simply because many of their friends were. Others had stated they learned about investing through books co-workers had recommended like Simple Path to Wealth, Rich Dad Poor Dad, etc.
16% said their parents were influential in starting their investments — either through seeking advice or inheriting a fund, their parents had started for them.
Finally, the remaining 16% were influenced by other factors. Most notably, half of this group (8%) took advantage of the pandemic-induced recession a year ago.
Which platform should you choose?
In addition to asking about investment beginnings, I also collected data on their first investment platform:
Robinhood has the clear majority at 48%. I personally started with Robinhood back in 2016 because of how they made investing accessible through commission-free trades, and it seems many others felt the same. Clearly, Robinhood is leading the way for the new generation of investors.
Fidelity is the runner-up at 16%. A significant portion acquired their Fidelity accounts through their workplace since it’s been a trusted organization for years.
The remaining 36% “other” consists of platforms like:
- WeBull — a similar DIY platform like Robinhood, but for more advanced traders
- Vanguard — famous of its use of index fund investing
- Betterment — a hands-off, goal-oriented robo-advisor
- Schwab — similar to Fidelity
- TD Ameritrade — notably used for its day trading software called Think or Swim.
Initial deposits — how much should you start with?
Lastly, I wanted to assess people’s initial risk tolerance levels by asking what their first deposit was. Here are the results:
$100 was the most common initial deposit amount (56%), while another 20% invested less than $100. Another common amount was $1000 (12%), while another 12% invested beyond that.
However, when I asked everyone about the reasoning behind their initial amount, the response so far has been mostly unanimous:
They were “testing the waters” with “money they could afford to lose.”
It seems that, regardless of the initial investment’s dollar amount, most people are trying to assess the risk of investment with their first deposit before continuing to commit more funds.
Why do you invest?
Then, I dug deeper into why these 25 people were looking to invest in the first place. Here is what they said:
36% seek to increase their personal freedom when it comes to investing. Most interviewees described this as having the freedom to move jobs, to obtain property for leisure, and even to retire early.
32% seek to improve their personal security. Interviewees expressed their interest was in protecting what they already had or protecting their current trajectory in life. Most described this as being prepared for emergencies, career shifts, or any other life changes.
(Here’s where it gets interesting!)
20% specifically stated the words:
“To get ahead.”
I thought, “Was this a race? Are there people we should be catching up to?”
When asked what they meant, many interviewees expressed that their families are new in the country and that “just working” wouldn’t be enough for them to “catch up.”
Finally, another 12% specifically mentioned their families — intending to be prepared to family emergencies, to help in their parents’ retirement, or are already actively supporting their family in day-to-day expenses.
Where income goes (expenses vs. savings vs investing)
After investigating the reasons people started investing, we explored where people’s income flowed after they received a paycheck.
The graph below shows the average of how much net income went to expenses versus savings versus investments:
Expenses accounted for nearly half (~48%) of where a person’s net income. This is lower than expenditures for the average American who, according to the Bureau of Labor Statistics, spends 76% of their income on expenses (Good job, friends!). The remaining half of the paycheck is somewhat equally divided between investments (~23%) and savings (~29%).
But what determines how much goes to investments versus savings?
Paycheck pipeline breakdown
For almost all interviewees, the “paycheck pipeline” goes like this:
- Gross income comes from a primary source (usually an employer)
- Then, 401(k) contributions are deducted. 40% of interviewees contribute the full amount matched by their employer, 8% partially contribute, and the remaining 52% don’t have a 401(k).
- Then, IRA contributions are deducted. 92% contribute the full amount, while 8% don’t have IRA accounts.
- Then, the net income finally reaches their primary checking or savings account, which acts as the “central hub” of their financing activities.
- After ensure there’s enough money available for monthly expenditures in their primary bank account, surplus income is sent to a savings account that acts as either as an “emergency fund” (see below for more details) or a place to save money towards a particular life goal (the two most popular are a down payment for a first early adult-life home or saving for graduate school).
- If the emergency fund is full, the rest is moved to an individual investment account.
Emergency fund discussion
One topic that arose from the interviews was the concept of having an emergency fund — typically a high-yield savings or checking account with money set aside for these two main scenarios:
- a few months’ worth of normal expenditures in case of career shifts
- money for medical emergencies with family (especially with COVID on the horizon)
But how big should the emergency fund be?
Some advocate to keep the emergency fund “small” at 3–4 months’ worth of expenditures or less (some even said 1–2 months). Others opted for a higher threshold of 6–8 months (or even a full year).
The main consensus is that the size of your emergency fund is going to stem from your own risk-tolerance level in the context of your current financial situation (i.e., how secure are you feeling right now?).
Investing strategies
At last, we’re here! Where do my friends invest their money?
Below is the cumulative average of how the 25 interviewees invest.
Index funds have a cumulative average of 52.2%, indicating they hold more weight in most portfolios, whereas individual stocks are a close second at 39.7%.
What’s not shown on the graph, however, is that nearly all interviewees have a mix of index funds and individual stocks, whereas only 5 interviewees (20%) had other investments such as crypto currency or rental properties.
Furthermore, most portfolios have uneven distribution instead of a 50–50 split. For example, one individual might have 75% individual stocks and 25% index funds while another might have the opposite: 25% individual stocks and 75% index funds.
What about day-trading? Only 3 interviewees (12%) have had any day-trading experience, while most urge to stay away from it (myself included) due to its high-risk nature.
Advice from my friends
The three main points of advice from my friends are:
- Have an emergency fund. You can figure out how much you’d like to have in there, but everyone agrees that having one is important.
- Know your own risk levels. Investing is highly subjective, so it’s vital to only invest what you’re willing to potentially lose. However, you can grow your “risk-tolerance muscles” by practicing buying and selling and gradually building up from small amounts beyond your initial deposit.
- Seek advice from people you trust — sometimes it takes a good friend to nudge you in the right direction.
Did I miss anything? Any more questions you’d like me to investigate on my next round of interviews? Please feel free to comment!
Making of a Millionaire is pleased to offer a free investing 101 class or the other free personal finance classes offered to MOAM readers.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
