When I talk to most millennials about investing, I get the same bunch of excuses: We are in a bubble so I don't want to lose money, housing prices are at an all time high and they won't go higher, I would rather travel and spend all of my savings to have a great life-experience.
I want to take a moment to tackle these comments one-by-one and show how taking a long-view on investing, be it in property or shares, will increase the likelihood of you getting to your goals.
I agree - property prices are possibly over-inflated at the moment. This is mainly due to low interest rates and a big boost in property values over the past few years as a result of the low rates and the popularity of investing in Australian residential property. This is particularly true in Sydney and to a certain extent in Melbourne.
But this isn't the first time this has happened. Taking a look back at 2003, we saw very similar economic conditions and a very similar pattern in the housing market. A rapid increase in prices leading up to 2003 and lower interest rates. What happened in the following years? Sydney prices dropped by around 5% or so, Melbourne a little less. The market then stayed flat for about 7 years. Australian residential property rarely goes backwards and when it does, it is historically a only slight dip. If you go back even further then a similar thing happened in the 90's and the 80's.
The bottom line - the Australian housing market tends to move in cycles. How do you catch a cycle? You either need to be able to accurately predict where we are in the cycle or take a long-view. Predicting cycle positions sounds easy but it is often not as easy as it looks so I encourage investors to take a 20 year view when investing, especially in property. Once you take a 20 year view then you are very likely to ride the wave of one cycle, if not two.
Housing prices are at an all time high and they won't go any higher
I was saying this to my partner the mid-90's, back when buying a two-story Sydney home was costing $350,000. I found myself saying this again in 2003 when I bought a property on a 1000m2 block in the leafy Northern Beaches suburbs for $900,000. This same block with a new home on it is now worth over $2.5m.
It keeps happening. What may seem almost unaffordable today will still go up in value. Why? Inflation is one thing - the cost of goods and services naturally go up over time. What may cost $1.00 today will cost $1.02 next year and $1.05 the year after. And it compounds. So inflation alone will tend to push house values up. The other thing is wage growth - as people earn more then they can afford to buy more. The other factor is supply and demand - as more people move into a big city, the prices of property will go up if there isn't a similar increase in new dwellings (which there usually isn't). A recent study by the Grattan Institute says that Sydney needs an additional 50,000 dwellings to be constructed per year for the next 10 years to keep up with demand.
I want to travel, spend my savings to get world-experiences under my belt
At the risk of sounding like your father, it is not really practical to travel the world when you are fresh out of uni or have just started work. Why not?
First, you don't usually have much money - so you end up backpacking or staying in poor accommodation. Traveling is limited once you are in a country and you may not be able to afford to see all the sights. Your "world-experience" tends to be a fairly sub-par one.
Second, while you are off travelling, your class-mates are now working, earning more experience in their jobs, getting their first promotions leading to pay increases. Your best pay-increases tend to be early in your professional careers. Not only that, they are generally saving money while you are spending it travelling.
So when you get back from your 6 or 12 months of "world-travel" you are now 1 year behind everyone else. You have also spent all of your savings so you are even further behind. They then can get into their first home much sooner than you. And once they have their first home, it starts going up in value sooner and they can then get their first investment property while you are still living with your parents, struggling to save that deposit.
Once your classmates get their first investment property then they have more funds coming in, have a better paying job and can then take their trip overseas - staying in a nice hotel and seeing the sights. But you know what? By that age they are probably content with a short holiday since they now have the wealth accumulation bug and want to be growing their wealth even more.
In summary, I recommend to start saving and investing as soon as you can. The compounding interest effect from 40 years of investment is a wonderful thing to behold. The earlier you start, the more wealth you have down the track.