NextWave – A young adult’s guide to investing

We hosted our 3^rd NextWave event last week in our King West offices where over 30 young adults gathered to learn about and discuss financial issues specifically relevant to the younger age demographic. This NextWave event is part of a larger program to help young adults develop healthy money management habits and ultimately gain the experience needed to steward wealth responsibly.

Last Wednesday’s discussion topic, A Young Adult’s Guide to the Financial Industry, was chosen as the result of multiple requests from previous attendees asking for a breakdown of the financial industry, an overview of the different players and the services and products available to young adults. We concluded the evening with an overview of the top 10 mistakes investors tend to make in an effort to help young adults identify and steer clear of making these same mistakes in the future.

Industry Overview

Differentiating between ‘unmanaged’ and ‘managed’ investing was the starting point for discussion – unmanaged portfolios we defined as the investor makes the ultimate investing decisions compared to managed portfolios where strategic decisions are outsourced to professionals. Looking at the financial players on a spectrum, direct brokerages lie on the furthest extreme of unmanaged portfolios. This do-it-yourself approach with no advisor guidance can be a good method for young adults due to its minimal cost and often lower account minimums. A drawback, or something significant to consider, is the sole responsibility one must undertake including having the time, knowledge and willingness to construct and manage a portfolio.

Jumping to the opposite extreme on the spectrum is a portfolio manager or investment counsel firm. These managed portfolios differ for a number of reasons including building a meaningful relationship with a licensed advisor. Advisors manage investments on a discretionary basis; the client and the advisor agree on an approximate strategy and the advisor manages the assets according to the predetermined mandate. Investment counsel is not typically readily available to young adults due to account minimums of close to $1 million of investable assets. Newport Private Wealth’s NextWave program provides a solution for young adults. For more information see Are your children financially astute?

Common Investor Mistakes

A recent study concluded that 30% of Generation Y’s portfolios are made up of cash, which is typically too large an allocation for young adults. Because many of them began their adult lives during the dot.com crash or more recently the financial crisis, they are fearful – either avoiding investing or being overly conservative. Excess cash often accumulates due to lack of interest in investing or, more commonly, young adults’ devotion to building careers in other industries; they simply don’t have the time. The lesson to be learned is to get your money working for you and start early, this can be done yourself or you can hire an advisor to assist you.

To avoid cash build up, it may be prudent to establish automatic contributions to investment accounts, ensuring money saved isn’t spent, and also avoiding the problem of trying to time the markets.

Money and finances are just one aspect of our lives, not necessarily an interest or passion. Our goal is providing young adults with the tools to help them make more informed decisions.

If you would like to learn more about the NextWave program or inquire about a future event, please contact Caitlin Chapman or Kevin Dean.