What Defines a Millennial?

What is a Millennial?

Now that I am running a personal finance blog for Millennials I get asked one question all the time; “who is considered a Millennial?” It is a very common question as most people know the Millennial generation, also known as Generation Y, as simply being young (and often times selfish, immature, entitled, etc.). But what birth years equate to a Millennial and who exactly is considered to be part of the Millennial generation?

Millennials & Generation Y

I am here to clarify who Millennials are and which birth years make you a Millennial. Millennials (also known as Generation Y) are the demographic cohort following Generation X. They are referred to as Millennials because they (me included) grew up during the new millennium.

Millennials are defined as individuals born between 1982 and 2004.




Personal Finance 101: Buy a Home You Can Afford

I am here to help Millennials make sense of what financial advisors suggest when it comes to buying a house, and figuring out just how much you can afford.

How Much House Can I Afford?

First off there is the 50/30/20 Rule, which states that 50% of your monthly budget should go towards essential living expenses (housing, transportation, food, insurance, heat/water, etc.).

30% should then go towards your more personal items, like “wants”. These are items that you could probably do without, but really want in life; like cable, coffee, dining out, entertainment, travel, etc.

The remaining 20% should go towards debt repayment and savings, short- and long-term goals like emergency fund and retirement, respectively. Obviously the more debt you have the harder savings becomes. That is when you may have to shift your 30/20 plan so you ensure you are paying yourself enough first.

Getting back to just how much house you can afford and the 50% rule. More specifically, financial advisors strongly encourage you to keep your mortgage payment to 25% of your take home pay. Speaking from experience, I completely agree with this. When your mortgage payment equates to 25% or less of your take home pay, its amazing how much money you are left for savings and other “wants”.

Mortgage Payment Calculator

Let’s pretend we have a Millennial couple making $100,000 annually as a household. If they follow the 25% mortgage affordability calculation, they would want to stick to a payment that is approximately $2,000 per month. Based off a 3.7% APR on a 30-year fixed, assuming at least a 5% down payment of $16,000, they could afford a $350,000 house.

Now, let’s get even more conservative. A lot of financial advisors would go one step further and suggest you only spend 25% of your monthly income AND get a 15-year fixed. This will help you tremendously, long-term, at achieving wealth and financial independence (because you would have a paid for home after only 15 years). And the amount you save on interest payments alone is remarkable, but more on that later.

Our same Millennial couple can afford a $350,000 home on a 30-year fixed. However, if they did a 15-year fixed they would only be able to afford a home worth approximately $250,000 (with a 5% down payment equating to $12,000). So $100,000 difference in home value! Trust me, a lot, and I mean a lot of Millennials don’t follow this logic. And it obviously depends on your specific market as well.

Mortgage Payment Calculator: Total Paid with Interest

This next one gets a lot of people. It got me! I don’t think anyone pays attention to just how much a house will cost them over the life of their loan when you factor in total paid with interest.

For example, our Millennial couple who bought the $350,000 house, with 5% down, would end up paying nearly $558,000 after their 30-year term is up. So that $350K house actually costs them $200K more than the purchase price.

Back to our frugal Millennial couple who took the advice of only using a 15-year fixed rate mortgage. The $250,000 house, with a 5% down payment, would end up costing them only $305,000 when their 15-year term is up. That is only $65K more than the purchase price versus over $200K on the 30-year fixed example.

That is why the 15-year fixed rate is recommended by so many financial planners and advisors. It obviously keeps you from becoming house poor and allows you to build wealth quicker. 

Pay Off Your Mortgage ASAP!

At the end of the day, you want to pay off your mortgage as soon as possible. Living rent and mortgage payment free would be a great feeling. If you choose to go the 15-year fixed route its much quicker (twice as fast, obviously), not to mention how much money you save in interest that could be allocated towards retirement, college, or general savings.

According to the Consumer Financial Protection Bureau, 30% of homeowners 65 and older kick off retirement with mortgage debt. Don’t let that be you, Millennials. Pay off your house long before retirement and you could actually retire early because you could then pay yourself your mortgage payment each month and accrue savings rapidly.




How to Measure Investment Performance

In you are anything like me, you are always wondering how your investments are doing and could you be doing better. Most financial experts suggest you measure your investment portfolio against “the market”, aka the S&P 500. I totally agree with that, however, I would suggest a couple other indices to measure yourself against.

All-In-One Funds for Millennials

In addition to the S&P 500, I also like to measure my retirement portfolio against a few other all-in-one funds out there that make really good sense for a Millennial investor.

I am specially referring to the Vanguard 2040 Target Date Retirement fund, the Vanguard LifeStrategy Growth fund, or the Vanguard Balanced Index fund. The latter ‘Balanced’ fund would be much more on the conservative side for a Millennial, but still a viable option for a Millennial who saves aggressively and is afraid of market risk and volatility.

As you can see from the chart below, I am losing handily to the market and my other Millennial indexes. Oddly enough, I used to be invested exclusively in the LifeStrategy Growth fund via my work 401(k). And my wife and I used to be exclusively in the Vanguard Target Date 2040 fund via our Roth IRAs.

I will keep a very close eye on these benchmarks over the next couple of years, because it may make more sense for me to invest in one simple “all-in-fund”. These rebalance automatically and make investing very simple and cut-and-dry. But I do like diversifying myself and adding more asset classes that aren’t weighted nearly as much in these typical funds, which would include REITs, Emerging Markets, and Small-Cap Value. With that said…diversifying with these classes isn’t helping me just yet.

But, investing is a long-term strategy and I feel like my portfolio is just hitting its stride and beginning to take shape for the long haul. I am a good 20+ years away from retiring.

Funds YTD 1-Year 3-Year 5-Year
My Portfolio  8.10% 12.50% 8.10% 10.80%
S&P 500 (VFIAX) 11.90% 16.79% 10.79% 14.61%
Total US (VTSAX) 11.21% 16.76% 10.36% 14.59%
TDF 2040 (VFORX) 12.78% 15.71% 7.23% 11.26%
LifeStrategy 80/20 (VASGX) 11.90% 14.29% 7% 10.41%
Balanced 60/40 (VBIAX) 7.90% 9.70% 7.37% 9.55%




Stock Market Recap (July 31-August 4, 2017)

This past week, July 31-August 4, the Dow outpaced the S&P 500 by about 1% for the second straight week. The Dow passed a new milestone, rising above 22,000 for the first time ever on Wednesday and closing at a record high on Friday, August 4, 2017. A lot of financial pundits believe this bull market will continue for another year. The hot July was evident of that.

I found this interesting note on CNN Money today. The S&P 500 hasn’t suffered a downturn of 5% or more since June 26, 2016. That’s 402 calendar days — the longest streak since May 1996, according to Bespoke Investment Group.

Looking ahead to next week, hundreds of companies will post second-quarter reports over the next few days. Let’s see what this does to close out the market come next week.

Last Week’s Stock and Bond Index Performance (July 31-August 4, 2017)

  • NASDAQ -0.4% (YTD 18.0%)
  • Dow Jones Industrial Average 1.2% (YTD 11.8%)
  • S&P 500 Index 0.2% (YTD 10.6%)
  • U.S. Aggregate Bond Index 0.2% (YTD 3.0%)

Last Week’s Retirement Portfolio Performance Report (July 31-August 4, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. I currently invest 15% of my income into my company Roth 401(k), and that doesn’t include the company match I get. All accounts are held with Vanguard (so as you can see I primarily invest in Vanguard funds because of this).

  1. Vanguard Total International Stock Index Fund (VTIAX) 0.8%
  2. Vanguard FTSE Emerging Markets ETF (VWO) 0.7%
  3. Vanguard International Growth Fund (VWILX) 0.6%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




Cost of Raising a Child: 5 Months In

How Much Does it Costs to Have a Baby?

My wife and I are first time parents and we are now five months into the “parenting” process. I made it a goal to track all of our child care expenses so I could truly report on the cost of raising a child. I invite all of my readers to follow along our journey as I diligently track all expenses involved in truly raising a child these days in middle class America.

Prior to us having a child I did some research and the consensus was that it costs roughly $14,000 per year to raise a child, which equates to roughly $240,000 (without college). Don’t get me started on how much college will cost for my child




How Much Does It Cost to Raise a Child?

We are five months in and thus far we have spent $2,227 on my daughter in total. We have lucked out and received a number of hand-me-down clothes and toys, as well as a ton of gifts and gift cards from our baby shower that are still holding us over. Albeit, we’re about out of gift cards now.

Last month I wrote about how we regularly receive baby formula coupons in the mail. We are still getting those coupons, which is great, but we also keep an eye out for deals as well. For example, just a couple weeks ago my wife found baby formula on clearance at Target for only $15! These were 42 oz tubs, which is massive, and they were marked down to only $15 each. And they don’t expire until 2020, so nothing to worry about there. Deals like this are always out there, whether its for baby formula, food, toys, or clothing, you can find baby items at massive discounts if you just shop correctly.

Our little girl is still growing slowly and at 5-month’s old is still in newborn diapers, so we actually had to go buy even more newborn diapers from Target ($40) to hold us over until she reaches size 1 diapers. She’s getting closer…hopefully by 6-months old she is finally in size 1.

Child Care/Nanny

We use a part-time nanny to watch our daughter two days a week. We consider ourselves very lucky though, as we have a nanny who comes to our house twice a week, a nanny our daughter loves, who really doesn’t costs us that much.

My wife is off two days during the week and then a family member watches her another day, so we only need to “pay” for two days of child care. We are three months in to paying for a nanny and child care, and have spent a grand total of $1,280.

Cost to Raise a Child: 5 Months In (2017)

  • 1st month = $414
  • 2nd month = $105
  • 3rd month = $545
  • 4th month = $643
  • 5th month = $520
  • Since inception (March, 2017) = $2,227

 

July

Item Price
529 contribution $50
Child care $400
Diapers $40
Formula $30
Total $520




What Does “FANG Stocks” Mean?

The term “FANG Stocks” is tossed around a lot these days when watching and reading about the latest stock market news. “FANG” is actually an acronym coined by CNBC’s Mad Money host Jim Cramer, and it relates to the four biggest and best performing tech stocks in the market, in the new Millennium; Facebook, Amazon, Netflix, and Google (which is now actually Alphabet, Inc.). These are perhaps the four most famous brands (tech or otherwise) and have performed the best over the last few years.

Below are some performance return stats that show just how well the “FANG” stocks have performed the last 5 to 15 years, respectively (when compared to the S&P 500). And by “performed” I actually mean “beaten” the market handily.

Best Stocks for Millennials

Facebook Inc. (FB)

Over the last 5 years, Facebook (FB) has beaten the S&P 500 by 24%.
(Facebook/FB stock performance returns via Morningstar).

  • 1 year returns: 36.39%
  • 3 year returns: 33.06%
  • 5 year returns: 39.10%

Amazon.com Inc (AMZN)

Over the last 15 years, Amazon.com (AMZN) has beaten the S&P 500 by 23%.
(Amazon/AMZN stock performance returns via Morningstar).

  • 1 year returns: 35.16%
  • 3 year returns: 41.27%
  • 5 year returns: 35.62%
  • 10 year returns: 29.57%
  • 15 year returns: 32.08%

Netflix Inc (NFLX)

Over the last 15 years, Netflix (NFLX) has beaten the S&P 500 by 29%.
(Netflix/NFLX stock performance returns via Morningstar).

  • 1 year returns: 64.37%
  • 3 year returns: 35.58%
  • 5 year returns: 67.75%
  • 10 year returns: 49.56%
  • 15 year returns: 38.57%

Alphabet Inc A shares (GOOGL)

Over the last 10 years, Google (GOOGL) has beaten the S&P 500 by 3%.
(Google/GOOGL stock performance returns via Morningstar).

  • 1 year returns: 32.77%
  • 3 year returns: 18.02%
  • 5 year returns: 21.72%
  • 10 year returns: 10.81%

So over the last 5-15 years, all of the aforementioned “FANG” stocks (Facebook, Amazon, Netflix, and Google) have beaten the market by the healthy clip. But, will they continue to do so moving forward? I can’t predict the future, especially when it comes to picking tech stocks, but all four of these companies appear to be ready to continue that trend for some time now (in my opinion). I think any of these four “FANG” stocks are a great buy for Millennials, if you are looking to buy individual stocks. I personally don’t own any individual stocks, as I am an index man, but I wouldn’t argue buying any or all four of these stocks. In every sense of the word they are perfect stocks for Millennials.




Stock Market Recap (July 24-28, 2017)

This past week, July 24-28, the stock market was actually perfectly flat. The S&P 500 finished the week at 0.0%. With more than half of the companies in the S&P 500 having reported second-quarter results, earnings are up 9.1% year-over-year, signaling that the profit rebound remains intact.

Last Week’s Stock and Bond Index Performance (July 24-28, 2017)

  • NASDAQ -0.2% (YTD 18.4%)
  • Dow Jones Industrial Average 1.2% (YTD 10.5%)
  • S&P 500 Index 0.0% (YTD 10.4%)
  • U.S. Aggregate Bond Index -0.2% (YTD 2.8%)

Last Week’s Retirement Portfolio Performance Report (July 24-28, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained (or lost!) last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. I currently invest 15% of my income into my company Roth 401(k), and that doesn’t include the company match I get. All accounts are held with Vanguard (so as you can see I primarily invest in Vanguard funds because of this).

  1. Vanguard International Growth Fund (VWILX) 1.3%
  2. Vanguard REIT Index Fund (VGSLX) 0.5%
  3. Vanguard FTSE Emerging Markets ETF (VWO) 0.4%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”. I am purposely over-weighted in Small Cap Value, which at times helped me beat the market and at the same time lag the market.

With that said, if I can beat the market I will absolutely take it (obviously)! Last year in 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.

The primary reason I was able to beat the market last year was due to the strong performance of my Small Cap Value holdings, which I am weighted heavily in.




Over the last 3 years my retirement portfolio is up 6.8% versus 6.5% from the Vanguard 2040 Target Date Fund. However, over the last 5 years my retirement portfolio is only up 10.5% versus 11.29% from the Vanguard 2040 Target Date Fund. This target date retirement fund is my personal benchmark. If I can’t beat or match it, I should simply be in it exclusively.

I am a Millennial, a liberal arts major, and I am my own financial advisor. I am strongly considering using the services of robo-advisor Betterment, however. The more I read and research Betterment, the more I like their product, services, and overall costs. But at this point, I am managing my own portfolio.

Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




Financial Plan: Retirement Goals

Setting SMART Retirement Goals

I want to set “SMART” retirement goals for myself. And by “SMART” I mean…

  • Specific (simple, sensible, significant).
  • Measurable (meaningful, motivating).
  • Achievable (agreed, attainable).
  • Relevant (reasonable, realistic).
  • Timely (time-based, time-sensitive).

I decided it was time for me to formally write out my financial plan. I have a number of different retirement projection spreadsheets, but now I need a more formal written financial plan that I could reference from here on out.

I started by documenting my retirement goals. I am in my early 30’s so I am projecting ahead (aren’t we all when it comes to retirement though?). I used my plan to organize my exact goals for retirement and I classified my retirement goals into 4 specific and measurable categories.

  1. Extremely early retirement: retire by 50, aka “Dream Retirement” scenario
  2. Very early retirement: retire by 55, and I would classify this as a “Stretch Goal”
  3. Early retirement: retire by 60, and this would be my “Target Goal”
  4. Retire by 65 and this would be considered my “Threshold Goal”, aka, I would be very disappointed if it took me until the age of 65 to retire

“Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” —Pablo Picasso




Retire by Age 50: “Dream (Early) Retirement”

As of July 2017, retirement projection for 2035 is $1.85M w/8% return
(6% = $1.45M / 10% = $2.38M)

  • $60,000 annual income / $5,000 monthly (2017 dollars) would equate to $93,500 in 2035 dollars (2.5% inflation rate) = $1.56M needed in retirement savings
  • $85,000 annual income / $7,000 monthly (2017 dollars) would equate to $132,500 in 2035 dollars (2.5% inflation rate) = $2.42M needed in retirement savings
  • $100,000 annual income / $8,300 monthly (2017 dollars) would equate to $156,000 in 2035 dollars (2.5% inflation rate) = $2.61M needed in retirement savings

Retire by Age 55: “Early Retirement”

As of July 2017, retirement projection for 2040 is $2.9M w/8% return
(6% = $2.1M / 10% = $4M)

  • $85,000 annual income / $7,000 monthly (2017 dollars) would equate to $150,000 in 2040 dollars (2.5% inflation rate) = $2.4M needed in retirement savings
  • $100,000 annual income / $8,300 monthly (2017 dollars) would equate to $176,000 in 2040 dollars (2.5% inflation rate) = $2.93M needed in retirement savings
  • $120,000 annual income / $10,000 monthly (2017 dollars) would equate to $212,000 in 2040 dollars (2.5% inflation rate) = $3.63M retirement savings

Retire by Age 60: “Retirement”

As of July 2017, retirement projection for 2045 is $4.43M w/8% return
(6% = $2.9M / 10% = $6.6M)

  • $120,000 annual income / $10,000 monthly (2017 dollars) would equate to $240,000 in 2045 dollars (2.5% inflation rate) = $3.66M needed in retirement savings
  • $144,000 annual income / $12,000 monthly (2017 dollars) would equate to $287,000 in 2045 dollars (2.5% inflation rate) = $4.5M retirement savings

Retire by Age 65: “Late Retirement”

As of July 2017, retirement projection for 2050 is $6.69M w/8% return
(6% = $4.1M / 10% = $10.9M)

  • $200,000 annual income / $16,666 monthly (2017 dollars) would equate to $430,000 in 2050 dollars (2.5% inflation rate) = $6.67M retirement savings