Last month, ACG sponsored a personal finance-focused event as part of its NextGen program, which provides young, “rising star” corporate growth professionals with the knowledge, skills, and strategies they’ll need to be the business leaders of tomorrow. The event featured Patrick Gleeton, a Private Wealth Advisor at Bernstein Private Wealth Management and self-professed, “Millennial,” who shared his knowledge and advice on how young people should be managing their personal finances and building wealth.
For young people just starting out, the very idea of managing their personal finances may seem silly. After all, what’s left to manage after the rent, college loan, and car payments clear each month? And that’s a problem that’s especially poignant for this current generation of young business professionals – many of which are facing immense student loan debt, extremely high housing prices, and wages that have been relatively flat for the better part of two decades. But there are things that they should be doing to set themselves up financially for the future and retirement.
Knowing the personal finance challenges and questions that many of today’s young professionals have, we sat down with Patrick to ask him some really hard questions about what young people should and could be doing to build wealth. We also asked about some of the large trends impacting our economy and personal wealth today – from the continued impact of COVID on employment, to the viability of making money with “meme stocks” in the “Stonk market.”
Here is what he had to say:
Corporate Growth, Capital Style (CGCS): You recently hosted an event for young professionals in the national capital area about personal finance. What are the things that the average young professional isn’t doing that they should be doing to set themselves up for financial security and stability in the future?
Patrick Gleeton: The most important this is putting together a financial plan and sticking to it. Most people, both young and old, I speak with have some kind of loosely-built budget they follow but typically stop there.
A financial plan factors in not only budgeting but also savings and debt servicing. By creating a plan that factors all these in, individuals are able to put themselves in better financial situations by having a clearer picture of the steps they need to take to achieve their financial goals.
CGCS: When it comes to what you should be doing with your money – what you should be saving, what you should be putting into retirement accounts – the numbers seem to constantly be shifting and changing. Are there percentages that young professionals should be meeting for these things? Are there any metrics, goals, or benchmarks that people should be trying to hit in the future?
Patrick Gleeton: Approximately 10 percent of an individual’s gross income seems to be the “ideal” starting point you most commonly come across, but there really isn’t a magic starting number. So much of what an individual can contribute really depends on their own unique financial situation.
For a lot of young professionals, they are facing high student debt and rising housing costs so 10 percent may not be feasible. Most employers today offer some form of a retirement account, typically a defined contribution plan, where the employer will make a matching contribution.
“…young professionals have experienced two ‘once in a lifetime’ recessions, have record student debt, and face what seems like an ever-rising cost of housing that the pandemic only accelerated. These are serious challenges for anyone to face, let alone young professionals.” – Patrick Gleeton
I recommend young professionals – at a minimum – contribute the percentage their employer matches. This is essentially free money that they otherwise are leaving on the table. From there, this percentage should be increased over time as an individual’s income increases.
In terms of a goal or benchmark to get to, a lot depends on an individual’s lifestyle but, eventually, you want to be saving 15 percent or more of your gross income to give yourself the greatest chance of having sustainable spending in retirement. What’s nice is, there are a lot of great tools online that give insight into whether you are saving enough for retirement or not.
CGCS: Today’s next generation of young professionals is facing a very different economic environment than their parents did at their age. Incomes and earnings have stayed mostly flat, while some living expenses – such as the cost of housing – have skyrocketed over the last few years – especially in the National Capital Region. What advice would you give to young professionals in this area who might think that things previous generations could afford – like homeownership – may never be within their reach?
Patrick Gleeton: Being a millennial myself, this is something I’ve thought a lot about. To your point, young professionals have experienced two “once in a lifetime” recessions, have record student debt, and face what seems like an ever-rising cost of housing that the pandemic only accelerated. These are serious challenges for anyone to face, let alone young professionals.
Thankfully, even with these headwinds, the “American Dream” is still achievable. As we’ve talked about, it starts with creating a financial plan and staying disciplined in following that plan.
While saving as much as possible is great, effectively managing your debt and thereby increasing your credit score is also very important. There are a lot of lending options available today for first-time homebuyers that don’t require a 20 percent down payment but do require a quality credit score.
CGCS: Over the course of the last month, we’ve seen some really interesting news regarding day traders and casual investors making small fortunes on well-timed bets into stocks like AMC and Game Stop (GME). Do you see this trend continuing into the future? Is there room in a young professional’s budget to put some money into platforms like Robinhood and do some casual trading on the side? Can the potential reward outweigh the risk? If not, how would that money be better spent?
Patrick Gleeton: Last month’s events were definitely interesting and I’m curious to see the reaction from regulators and lawmakers. Some adjustments may be made to the system, but in general, we believe political leaders and regulators will want to ensure trades clear smoothly and that unsophisticated investors do not lose money they can’t afford to lose.
Investors who short stocks may continue to capture more public attention. For the record, we believe short-sellers are a critical part of the financial system who exist to find frauds and overvalued assets, to smooth the markets by providing liquidity to other investors both when stocks are going up and when they’re going down, and to generate additional returns for clients. They may not be politically popular, but they provide a service to the markets that we all benefit from.
“Like any service you pay for, you want to make sure you’re getting the most value for your money. For the majority of young professionals who are just starting to save and invest, a professional money management firm or financial advisor isn’t necessary.” – Patrick Gleeton
I won’t say there isn’t room for a young professional or any investors to have a casual trading account, but this should represent a small portion of their overall portfolio. We believe the key to long-term investment success is through a broad-based, diversified investment approach.
CGCS: What tools and partners/companies are there out there to help young professionals with their personal finances? Are the wealth managers and financial services firms that we see advertising on TV only for the older, more established professionals with larger bank accounts? Are they even willing to work with someone that’s starting out and may find most of their income going back out the door to cover living expenses?
Patrick Gleeton: This is a question I get a lot from young professionals. The short answer is, it depends. Today, there are more options than ever for investors, both young and old. What it comes down to is the needs of the investor.
Like any service you pay for, you want to make sure you’re getting the most value for your money. For the majority of young professionals who are just starting to save and invest, a professional money management firm or financial advisor isn’t necessary.
Advisors like myself – and firms like Bernstein – cater towards investors that have a significant amount of assets and often are dealing with the complexities that come along with their significant wealth. For example, I’m helping clients with pre-IPO and pre-transaction planning, trust and estate planning, and charitable giving strategies. These are services that the majority of young professionals don’t require, so it doesn’t always make sense to pay for professional money management.
“…a lot of the issues plaguing our economy pre-pandemic – populism, deglobalization, and high debt levels – haven’t gone away and have actually accelerated due to the pandemic. These factors will weigh on growth over the long term, as they have done for most of the last decade.” – Patrick Gleeton
I advise young professionals who are just starting out to look into the robo-advisor platforms that are available in the marketplace. These platforms will provide investors with turn-key asset allocation advice for a low management fee and typically no investment minimums. For budgeting, Mint.com, mvelopes.com, and goodbudget.com are a couple platforms. Your bank and credit card company may also offer some form of a budgeting tool.
CGCS: When is the right time for someone to reach out to an organization like that? Is there a certain amount of savings or investments that they should have before engaging with a firm like that?
Patrick Gleeton: I wouldn’t say there is a specific number to engage with a professional money manager but when an investor starts to feel that things are getting too stressful or burdensome for them to manage, it may be time.
CGCS: There’s obviously a lot of bad stuff in the news right now – pandemics, economic downturns, racial injustice. What is the economic outlook for young professionals in this region looking like in the next year? Next five years? How do you see these macro-trends impacting our region, and what do you envision happening in the future?
Patrick Gleeton: For the near-term, we’re expecting robust growth. We’re closely watching three things when it comes to economic recovery. The vaccine rollout, economies reopening, and earnings recovery.
As more people are vaccinated and herd immunity increases, more economies will start to reopen. As economies are reopening, earnings will recover. Prior to the pandemic, the National Capital Region was one of the most attractive areas in the country for job opportunities and growth. As the factors I mentioned continue to improve, I’d expect the National Capital Region to recover nicely.
That being said, a lot of the issues plaguing our economy pre-pandemic – populism, deglobalization, and high debt levels – haven’t gone away and have actually accelerated due to the pandemic. These factors will weigh on growth over the long term, as they have done for most of the last decade.
We’re going to need to see the Fed and Congress work together through fiscal and monetary policy to achieve sustainable growth and inflation that will break us out of the low-growth, low-inflation regime we’ve had the last decade or so.
If you’re interested in learning more about the ACG National Capital NextGen Program, click HERE to access the registration page. To learn more about Bernstein Private Wealth Management, click HERE.
This material contains the opinions of the author, but not necessarily those of AllianceBernstein or its affiliates and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy, or investment product. Bernstein does not provide tax, legal, or accounting advice.