77% of millennials think they know the best way to save for the future—but they’re wrong

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Young people want to save for the future, and about a third of them believe the best way to do that is to stockpile cash.

That’s according to a new survey from Bankrate, which found that 30 percent of millennials (those aged 18 to 37) say cash is the best place to put money they won’t need for 10 years or more. Just 21 percent of those 38 and older say the same.

Less than a quarter of millennials cite investments in the stock market as the No. 1 way to store money long-term, even though that's what experts recommend. Close to 77 percent favor other options, including cash,  real estate, gold and bitcoin. That’s a mistake that could cost them thousands, or even millions, of dollars, especially considering that millennials are expected to have the biggest retirement savings burden in history, Greg McBride, Bankrate’s chief financial analyst, tells CNBC Make It.

“You can’t save enough to get the nest egg you’ll need in retirement without the benefit of the power of compounding,” McBride says.

“The buying power of your investments is going to get eaten away by inflation by about 2 percent to 3 percent per year,” McBride says. “So you’ve got to earn at least that much to preserve the buying power.”

Many millennials are hesitant to enter the market, however, and Bankrate posits that younger people prefer cash because it’s hard to imagine owning funds they won’t touch for decades. Their nervousness also makes sense, given their experiences: Many millennials have seen investments collapse.

“A lot of it is being shell-shocked of coming of age during the financial crisis,” McBride says, adding that older millennials also witnessed a similar event with the dot com crash in the early 2000’s. “To see that once or twice within a period of a few short years understandably scared a lot of investors out of stocks altogether.”

But although the stock market can be volatile, history shows that investing almost always pays off: Over the past 90 years, the average annual return for the S&P 500 is over 9 percent.

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Here are four ways millennials can make the most of their money.


First and foremost, diversify your investments. You want "something that is letting you be in a lot of different places all at the same time," Andy Smith, a certified financial planner at Financial Engines, tells CNBC Make It.

That means making sure you have a mix of investments across various categories. For example, if you choose to invest in index funds, don't just go with the S&P 500. "You can't just pick one index and think that all of your work is satisfied," says Nick Holeman, a certified financial planner at Betterment. "There's smaller companies in the United States, there's companies in Europe and Asia and Australia and there's bond indexes."

Take advantage of tax savings

The easiest way to start investing is to contribute to a tax advantaged retirement account, such as a 401(k) or a Roth IRA.

“With a tax advantaged plan like a 401(k) or an IRA, the government is helping you save by giving you a tax advantage, whether that’s a tax deduction now on the money you contribute or the ability for that money to grow on a tax-deferred basis, or, in the case of a Roth account, the ability to make withdrawals tax-free in retirement,” McBride says. Plus, any employer match on a 401(k) account is essentially free money.

Read up on the different types of retirement accounts to decide which type is right for you.

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Don’t take on too much too soon

Reluctance to enter the market is understandable, so it’s important not to take on more risk than you’re comfortable with. "Investing is not for the faint of heart," Holeman says. "The stock market goes up and down very frequently and if you follow the news, you would think that every day is the impending doom for the stock market and that can be scary."

Instead of dwelling on the daily upsets of the market, think about the variables that are within reach. "You cannot control the stock market, that is out of your power," Holeman says. "But you can control your fees, your taxes, your risk, and your behavior."

Put cash to work

Even the funds you keep in cash can be put to work. Although the average interest rate on a standard savings account hovers around 0.18 percent, online banks offer high-yield accounts with rates as high as 2 percent.

“If you’re going to put money in cash, even for shorter amounts of time, do yourself a favor and make sure you’re earning the most competitive return that you can so you can preserve the buying power,” McBride says.

Don’t be afraid to shop around for the best rates. To get started, you can check out rankings of the top accounts for 2018 from Bankrate and NerdWallet.

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