Young Investors Heading to the Internet for Financial Help
His major is history, but in the Friday editions of "The Daily Californian" John Waste plays the part of finance columnist.
The University of California, Berkeley student pens the "Finance on Friday" column that appears in the independent student newspaper. It's a topic that he's highly interested in — the 21-year-old uses the Web to check in on his portfolio just about every day. His financial goals: buying a home in the next five to 10 years and saving up for a comfortable retirement.
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Certainly his investing habits aren't typical for his age. But Waste also thinks people in his generation take investing a lot more seriously than others might give them credit for. A recent survey by Scottrade seems to lend credence to that hunch.
Nearly 40 percent of 18- to 24-year-olds and 60 percent of 25- to 34-year-olds surveyed said they are concerned about having money for retirement. In addition, 59 percent of 18- to 24-year-olds said they saved for retirement in 2006 and 89 percent said they planned on saving for retirement in 2007. Seventy percent of 25- to 34-year-olds saved for retirement in 2006 and 85 percent said they would save for retirement in 2007.
And like Waste, many of those getting an early start are doing investment research on their own, the survey suggests. Scottrade is a branch-supported, online investment firm.
Instead of tapping the knowledge of a professional adviser, 36 percent of 18- to 24-year-olds and 49 percent of 25- to 34-year-olds said they were actively planning on their own.
Their research resource of choice: No surprise, it's the Internet.
Searching for reliable sources
"I do a great deal of research on the Web, especially stock research," Waste said. Yahoo Finance tops his list when it comes to research sites. He also keeps up with a number of blogs, but reads them with a skeptical eye, believing that "90 percent of them are complete crap."
One blog he does trust is written by Ramit Sethi, a recent Stanford University graduate, budding entrepreneur and personal-finance speaker who has created the blog "I Will Teach You to be Rich."
Sethi, 24, said he created the blog because he found Web sites, including those of major banks and brokerages, boring to read. He set out to "make a site about sensible, long-term investing" and to write it in a conversational tone.
Investors of his generation are smart enough to do financial research and planning on their own, he said. But he advises readers to get a variety of perspectives through their research, never limiting information and advice to just one source. He doesn't think this group accepts everything read online either — including content on the numerous financial blogs.
"Young people are very savvy about figuring out what is credible and what is not," he said.
That said, he finds the Scottrade results a bit hard to believe from the anecdotal evidence he's collected through those who visit his blog. In college, investing is often put off and it becomes more of a priority when the graduate enters the working world, he said.
But even then, companies don't always have success in getting these young adults to participate in company-sponsored 401(k) plans, he said. Sethi blames a communication gap.
"Companies need to be smarter and more aggressive with how to reach young employees," he said. "Companies are offering it (matching funds), and they want young employees to take it. But they're not being reached in the right way."
Online financial hot spots
According to Hitwise, a compiler of Internet-usage data, Forbes.com and ShareBuilder.com are currently the two top financial Web destinations for 18- to 34-year-olds. Forbes.com is the online cousin of the financial magazine; ShareBuilder.com allows its users to purchase partial shares of stock, allowing investors to try their hands at investing. Fidelity Investments' 401k.com comes in third.
Portals including Yahoo Finance and MSN Money also receive substantial traffic from those in the age bracket, according to Hitwise.
The information and planning tools on the Internet have empowered young adults to take control of their financial futures, said Chris Moloney, Scottrade's chief marketing officer. And for a generation that is comfortable managing money in cyberspace, it's a perfect fit.
"They have more information at their fingertips today than the professionals had five years ago," he said. "The Internet has truly become an enabler."
Young adults are also at the point in their investment lives when they can assume larger risks in their portfolio, Moloney pointed out. As they age or accumulate greater amounts of wealth, they may decide to turn to professionals for help.
Although many in the age group go it alone for now, the question is: "Will they feel like they can do it alone forever?" Moloney said.
Starting early with high hopes
Part of the reason young adults may be thinking about retirement at an earlier age than their parents is because they can easily take advantage of 401(k) plans, said Mike Bailey, a managing director for Compete Inc., an online market-research firm that conducted similar research last year.
"Young people coming out of college... almost all have some kind of 401(k) plan," he said. And unlike the days of company pensions, many young adults are aware from the start that they need to take a more active part in preparing financially for retirement, he added.
They also take it seriously because of the popular belief that they won't receive support from Social Security — a view shared by Waste and many of his peers.
"I know I'm not counting on getting any help from Social Security," Waste said. "I can't point to anyone (of college age) who closely follows current events who thinks that Social Security is going to provide any safety net for them in retirement."
According to the Compete research, for members of Generation Y (defined in its study as those between the ages of 18 and 28), the average age to start saving for retirement was 24, Bailey said.
The Scottrade survey also reported lofty savings goals for young adults today. Thirty-nine percent of 18- to 24-year-olds and the same percentage of 25- to 34-year-olds want to have $1 million or more saved up for retirement. Twelve percent of 18- to 24-year-olds and 9 percent of 25- to 34-year-olds want their nest egg to exceed $5 million.
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Despite their efforts, 21 percent of 18- to 24-year-olds said they don't think they'll ever be able to retire, with 42 percent of 25- to 34-year-olds indicating the same, according to the Scottrade study.
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