There is indeed truth in that. Millennials face huge challenges regarding their retirement investments. On the one hand, they know that they have to save money for their old days. On the other hand, they are loaded with student debt which makes it hard to put anything aside.
Now here we are, a heavy debt burden and often the job prospects aren't that rosy either. That doesn't leave much space for saving money. Nevertheless, putting something aside is crucial, also in today's economic environment.
Although bonds offer low returns, they should still have a place in your retirement portfolio
Bonds are globally the asset class with the biggest market volume. Especially government bonds of industrialized countries have always been an essential part of every retirement portfolio, as they are relatively safe and offer stable returns.
However, the prospects for astronomical returns have always been slim in the bond market. That is especially true nowadays, because interest rates are near zero. When taking into account the current inflation rate, many government bonds carry no or even negative real interest rates.
However, the federal reserve bank (Fed) has recently started to increase interest rates, which could make bonds more attractive in the long run.
Although returns are low, safe government bonds should be part of your retirement portfolio. They are a good opportunity to compensate the volatility of your stocks and offer a stable and regular income. However, considering the low returns, especially young investors shouldn't put too much of their money into bonds. If you still have a long way to go until you reach retirement, you can take some more risks.
Gold has always been a good long term investment, because it is an anchor of stability in times of political and economic turmoil
A retirement portfolio should include commodities, especially gold. The precious metal has had an annual return of about 3.5% over the past 40 years, 1.5% over the past 30 years and 6% over the past 20 years. That's not bad, better than many other asset classes.
Moreover, gold is especially attractive during times of financial instability. As central banks' monetary policies could drive up global real inflation in the coming decade, gold will gain in value.
Furthermore, even the world's most important currencies are not backed up by any real value and might therefore be manipulated by policy makers. Therefore, political and economic problems could lead to a further destabilization of these fiat currencies and create danger for your savings. Therefore, gold is the best way to save money right now.
Stocks offer attractive returns and investments in stable companies are relatively safe in the long term
Investing in stocks can be a risky business. However, returns are better than in the bond market and in the long term, stable companies are relatively safe investments as well.
The catch with stocks is to pick the right companies and not to obsess over your portfolio. It's better to buy some blue chip stocks and invest in index funds that don't require you to oversee your investments everyday. Also, consider buying dividend stocks. That will enable you to cash out on a regular base while you don't have to worry too much about stock prices.
In 2016, it makes more sense than ever before to diversify geographically. While the Fed increased interest rates last month, Europe and Japan are into quantitative easing. “We think this divergence in monetary policy will be broadly a tailwind to European and Japanese assets, while acting as a headwind to U.S. (and potential U.K.),” says a Goldman Sachs strategist. On the other hand, Bank of America expects American stocks to outperform European stocks. Hence, it makes sense to invest in both regions.
In the end, putting together a retirement portfolio is not rocket science. It's actually quite easy: bonds, some real assets and stocks. If you have more money or deeper financial knowledge, you can also go for more sophisticated investment vehicles but for an average investor in his 20's or 30's, that's already quite good.