- Jeff Erdmann has topped Forbes’ US annual wealth adviser rankings for the last six years.
- Erdmann’s group at Merrill Lynch advises clients worth between $2.5 million and $11 billion.
- He explains how millennials and Gen Z can succeed at investing, housing, debt, and work.
- See more stories on Insider’s business page.
As a group, millennials need all the wealth-building help they can get, while Generation Z is just starting to get into the workforce and is facing its own set of challenges.
Jeff Erdmann might be one of the people best positioned to assist them.
His wealth management business at BofA Merrill Lynch advises people and families with at least $2.5 million in wealth and $11 billion in total assets, and Erdmann himself was just named the best wealth manager in the US by Forbes for six year in a row.
He’s also been recognized as one of the best in the country by Barron’s for more than a decade.
In an exclusive interview with Insider, Erdmann revealed what both of the generations should know about planning for the future, and how millennials and Gen Z can address some of the specific financial dilemmas they might face.
Manage all your debts
The idea of attacking debts one at a time based on their interest rates or the size of the monthly payment has become a popular one. Erdmann doesn’t recommend that, instead preferring to chip away at all of your debt simultaneously.
Erdmann acknowledges that paying down multiple debts at the same time can be difficult, but he said the important thing to remember is you should keep investing.
“I have seen people say, ‘Okay, I’m going to pay off my mortgage and then I’ll put money in my 401(k),’ or ‘I’m only going to put money in my 401(k), I’m not going to buy a house,'” he said. But neglecting to make a long-term investment can prove costly even if it saves money in the short term.
“Whether it’s how housing, retirement planning, education planning for your kids, they’re equally important,” he said. “Instead of trying to knock one out all at once, I would be chipping away at all of them at the same time.”
He said it’s important to understand debt and interest rates. Those rates have been historically low for years, which makes this a good time to borrow, but Erdmann says everyone should understand they might not stay that way, so adjustable-rate debts could be risky later on.
He said he’s less concerned about what low rates mean for investments such as bonds, where the return can be determined by the level of interest rates. Erdmann says that for wealthy people, the most important thing about their portfolio is the relationship of their spending to their assets, not their precise return.
That is, a person or a family who is spending about 4% of their portfolio value annually has a good chance at building wealth because a well-designed portfolio will return more than that over time, even accounting for inflation.
Stay invested and be diversified
Erdmann also addressed the all-time high problem: assets like stocks, bonds, and real estate as well as newer, trendy options like cryptocurrencies are at or near all-time highs, and that creates a couple of concerns There’s the temptation to worry that there’s little upside left, and the temptation to pull out of the market in tough times.
“Cost average in, be diversified, keep your fees low, be very cognizant of how much you generate in taxes, because taxes can eat you alive, and be an investor, not a trader,” he said, adding that worrying about factors out of one’s control like high stock market valuations or low interest rates isn’t productive.
People who try to time the market often end up making the wrong call on when to get out and when to get back in and can lose valuable time, he said. And even successful trading can easily incur tax bills that can wipe out otherwise healthy gains.
“You shouldn’t be risking half your portfolio on one asset class or one company or one rifle shot,” he said. “You’ve had a big run-up in asset values. So be thoughtful and spread your risk.”
Beware the “starter house,” millennials. As the generation enters peak homebuying age and pours into the housing market and snaps up whatever is available, as Insider’s Hillary Hoffower reported – or walk away discouraged and continue renting – Erdmann warns them not to think of their home as an investment they can quickly upgrade.
“Don’t buy a place with the intention that you’re going to sell it in three or four years and buy something different,” he said. “That’s a very expensive proposition and has more risk.”
Instead, he says they should concentrate on finding a long-term home and thinking about issues like their commute and local schools.
He also addressed millennials’ bad financial luck, noting that those who entered the workforce by the late 2000s have already endured two major stock market crashes. That shouldn’t scare them away from investing in equities as a way to build wealth over the long term, he maintained.
For Gen Z
The oldest members of Gen Z are leaving college and getting jobs, and Erdmann says they need to think about things on the longest time frames possible – even if that’s challenging at an early age. He says younger workers should think long and hard about what they want from their careers and not change jobs just to get a higher salary.
“Think long-term about how to build out your career,” he said. “Younger kids are jumping around a lot more. And I’m guessing that some are missing an opportunity to build a brand and to build a career inside an organization.”
As they find their places in the working world and build those brands, he adds, they need to keep investing in their 401(k)s and putting money away to save for a house or for the education of their children.