MONEY funds

George Soros Bets $500 Million On Bill Gross

George Soros
Billionaire George Soros, 84, is giving Bill Gross $500 million to invest for him. Rex Features via AP Images

Hedge fund titan George Soros is wagering half a billion dollars that bond king Bill Gross will excel in his new role at Janus.

Things are looking rosy for star bond fund manager Bill Gross, whose September departure from PIMCO—the fund company he founded—was accompanied by reports of tensions between Gross and other executives at the firm.

Now that Gross has moved to Janus Capital, where he manages the $440 million Global Unconstrained Bond Fund, it seems he’s getting a fresh start—plus some.

Not only did Janus see more than a billion dollars of new investments flow in last month, following Gross’s arrival, but the company also announced Thursday that hedge fund titan George Soros would be investing $500 million with Gross.

Quantum Partners, a vehicle for Soros’s investment, will see its money managed in an account that’s run parallel to but separate from the Unconstrained Bond Fund. That’s so Soros will be protected from sudden inflows or outflows caused by other investors, S&P Capital IQ mutual-fund research director Todd Rosenbluth told the Wall Street Journal.

Gross tweeted: “I & my team will manage your new unconstrained strategic acct. 24h/day. An honor to be chosen & an honor to be earned as well.”

Watch this video to learn more about what bond fund managers do:

MONEY stocks

Virtual Reality Makes Investing — Yes, Investing — Dangerously Fun

StockCity
StockCity from FidelityLabs

A new virtual reality tool from Fidelity makes navigating the stock market feel like a game—for better or worse.

There’s no question: Strapping on an Oculus Rift virtual reality headset and exploring StockCity, Fidelity’s new tool for investors, is oddly thrilling.

Admittedly, the fun may have more to do with the immersive experience of this 3D technology—with goggles that seamlessly shift your perspective as you tilt your head—than with the subject matter.

But I found it surprisingly easy to buy into the metaphor: As you glide through the virtual city that you’ve designed, buildings represent the stocks or ETFs in your portfolio, the weather represents the day’s market performance, and red and green rooftops tell you whether a stock is down or up for the day. Who wants to be a measly portfolio owner when you can instead be the ruler of a dynamic metropolis—a living, breathing personal economy?

Of course, there are serious limits to the tool in its current form. The height of a building represents its closing price on the previous day and the width the trading volume, which tell you nothing about, say, the stock’s historical performance or valuation—let alone whether it’s actually a good investment.

And, unless you’re a reporter like me or one of the 50,000 developers currently in possession of an Oculus Rift, you’re limited to playing with the less exciting 2D version of the program on your monitor (see a video preview below)—at least until a consumer version of the headset comes out in a few months, priced between $200 and $400.

Those flaws notwithstanding, if this technology makes the “gamification” of investing genuinely fun and appealing, that could be big deal. It could be used to better educate the public about the stock market and investing in general.

But it also raises a big question: Should investing be turned into a game, like fantasy sports?

There are dangers inherent in ostensibly educational games like Fidelity’s existing Beat the Benchmark tool, which teaches investing terms and demonstrates how different asset allocations have performed over various time periods. If you beat your benchmark, after all, what have you learned? A lot of research suggests that winning at investing tends to teach people the wrong lesson.

“Investors think that good returns originate from their investment skills, while for bad returns they blame the market,” writes Thomas Post, a finance professor at Maastricht University in the Netherlands and author of one recent study on the subject.

In reality, great performance in the stock market tends to depend more on luck than skill, even for the most expert investors. That’s why most people are best off putting their money into passive index funds and seldom trading. It also means there’s not a lot of value in watching the real-time performance of your stocks—in any number of dimensions.

MONEY Warren Buffett

Why Warren Buffett Just Bought Duracell

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc.
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Andrew Harrer—Bloomberg via Getty Images

All signs indicate that Buffett has once again found another wonderful business at a fair price.

The last few months have been a busy for Warren Buffett’s Berkshire Hathaway and today we learned its buying spree continued.

It was announced this morning Berkshire has come to an agreement with Procter & Gamble THE PROCTER & GAMBLE CO. PG 1.7439% to buy battery manufacturer Duracell in exchange for the $4.7 billion worth of Procter & Gamble shares Berkshire held.

The details

At the end of June, Berkshire held roughly 53 million shares of Procter & Gamble worth nearly $4.2 billion, and since then P&G has seen its stock rise by almost 15%, explaining the $4.7 billion price tag.

When P&G released its earnings for the first quarter of fiscal 2015, it also announced that it would be exiting the Duracell business, preferably through the creation of a stand-alone company. At the time of the announcement, P&G’s CEO A.G. Lafley said:

We greatly appreciate the contributions of our Duracell employees. Since we acquired the business in 2005 as part of Gillette, Duracell has strengthened its position as the global market leader in the battery category. It’s a business with attractive operating profit margins and a history of strong cash generation. I’m confident the business and its employees will continue to thrive as its own company.

Then, P&G noted the reason behind the move was “consistent with its plans to focus and strengthen its brand and category portfolio,” and that “its goals in the process of exiting this business are to maximize value to P&G’s shareholders and minimize earnings per share dilution.”

Today, P&G noted that the $4.7 billion price tag for Duracell would represent an adjusted earnings before interest taxes and depreciation, or EBITDA, of seven-times fiscal year 2014’s.

The rationale

So, why would Buffett make such a move?

First, as highlighted by many news outlets like Bloomberg, similar to Berkshire’s previous deals in acquiring an energy subsidiary from Phillips 66 earlier this year, by exchanging P&G stock for the entirety of Duracell, Berkshire will be able to abstain from paying any capital gains taxes as if the P&G shares had been sold for cash.

Considering that the P&G stake stood on Berkshire’s books at a cost basis of just $336 million at the beginning of this year, the tax savings alone are a compelling value proposition for Berkshire Hathaway and its shareholders.

Also, knowing at heart Buffett’s always been a proponent of buying businesses at an appropriate price, the fact that the market traded at an 11.5-times EBITDA multiple in January of this year, according to the Stern School of Business at NYU, and the consumer electronics industry traded at nine-times EBITDA, then the $4.7 billion price tag seems more than reasonable.

In last year’s letter to Berkshire Hathaway shareholders, Buffett wrote that “more than 50 years ago, Charlie [Munger] told me that it was far better to buy a wonderful business at a fair price than to buy a fair business at a wonderful price.”

So, the consideration of the deal must extend beyond just the financial aspects of it. And Buffett’s words regarding the deal are quite telling.

In today’s announcement Buffett said:

I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette. Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.

It is of note that Buffett mentioned the Duracell brand first. One of my favorite Buffett quotes is:

“Buy commodities, sell brands” has long been a formula for business success. It has produced enormous and sustained profits for Coca-Cola since 1886 and Wrigley since 1891. On a smaller scale, we have enjoyed good fortune with this approach at See’s Candy since we purchased it 40 years ago.

And how is this applicable to Duracell?

Consider for a moment in its ranking of the Best Global Brands in 2014, Interbrand estimated that the brand value of Duracell stood at $4.9 billion, ahead of MasterCard ($4.8 billion) and narrowly trailing both Chevrolet and Ralph Lauren.

Said differently, Buffett paid less for Duracell — the company — than what one company estimated its brand value alone is worth.

Also, it isn’t just the Duracell brand that is compelling, but its business, too. P&G noted in its annual report that Duracell maintains over 25% of the global battery market share. And Interbrand noted in its report on the company:

Duracell continues to respond to consumer demands through innovation and new product launches. New technologies in rechargeable batteries, longer lasting energy storage times (Duralock) and synergies with wireless iPhone charging (PowerMat) demonstrate responsiveness to a changing marketplace. Duracell is working to further increase its presence by forging retailer-specific partnerships and nudging competitors out of view in the process.

Clearly, the company isn’t afraid of innovation, and it is responding to changing demands and desires of consumers.

The charge to the bottom line

We don’t know the details of how Duracell will fit in the massive empire that Berkshire Hathaway has become. But there is one thing we do know — to the delight of Berkshire’s shareholders — all signs indicate that Buffett has once again found another wonderful business at a fair price.

MONEY stocks

Stocks Go Up. Stocks Go Down. Deal With It.

The best tool for addressing anxiety about the stock market is information. Unfortunately, that isn't always enough.

Like some of our investment advisory clients, I fear the market sometimes. The way I combat that fear is with information. Markets go up, markets go down. Here’s what’s normal. Here’s where we are.

Last month, in conversation with one of my more nervous clients — when I had finished my list of market facts and cycles, when I had emailed my short and long-term charts — she replied, “And I’m supposed to be content with that?”

Essentially, yes. That’s the answer most financial professionals would have, if they’re honest.

I suppose you may find it strange, but that’s the kind of challenge I’m up for. It’s a challenge to try to keep clients calm when markets are anything but calm.

In 2008, many of my friends who are financial advisers were deeply affected by the trauma that clients experienced as markets worldwide experienced the worst decline since the Great Depression. They remain affected by it. Trauma is not too big of a word.

Today, I don’t fear the downturn. I speak.

In a downturn, people’s attention is most focused on sliding markets. They may hear what you have to say, but they may not listen to your various messages: Markets are risky. They go up and down. If you don’t take market risk, you limit your potential for capturing the gains when they do come. If you do take market risk, you’ve got to be able to see that downturns are a part of the deal. Shall I get out my trusty charts now and show you just how common it is for markets to fluctuate?

Probably I’d bore you if I did. What you probably want to know is what’s a good strategy for dealing with a volatile market.

You could move some money out of equities, of course. Or we could layer into the portfolio some exchange-traded funds that continuously move out of the most volatile stocks and into the less volatile ones. Both these moves will limit returns, but will also make the trends less upsetting.

But even if we lessen the throbbing uncertainty, we cannot eliminate it.

No one has overcome market cycles yet, no matter what they promise. Cue the charts.

And here’s the flip side: For all the confidence the clients might have in us, we can’t tell them when the markets will tumble. We can’t tell them when to run for the hills. Because no one can.

I feel I have gone down this road to every end I can find, looking for the analytics, the portfolio theory, the guru, the portfolio construction expertise, the economic underpinning, the macro-down and the bottom-up way of selecting exactly what would be the best globally diversified portfolio. I’ve made my own deal with risk and return. But none of that work changes the simple fact markets do go down periodically. Personally, I am content with that.

But for that client, this is not a comfortable fact.

It’s humbling, really, to have a discussion in which you cannot provide something which is very much wanted.

But it’s a smart discussion to have.

The client told me that when the market goes up again, I have permission to say, “I told you so.”

The market is up nearly 10% since we had that conversation, so I might. But when times are good in the markets, it’s the same as when times are bad: Clients don’t listen.

———-

Harriet J. Brackey, CFP, is the co-chief investment officer of KR Financial Services, a South Florida registered investment advisory firm that manages more than $330 million. She does financial planning for clients and manages their portfolios. Before going into the financial services industry, she was an award-winning journalist who covered Wall Street. Her background includes stints at Business Week, USA Today, The Miami Herald and Nightly Business Report.

MONEY Markets

Here’s How Anyone Can Beat Professional Investors

141110_INV_PassiveInvesting
With cheap index funds, you can diversify without paying a premium. Herbert Gehr—Getty Images/Time & Life Picture

Statistically speaking, financial experts still can't match the "wisdom of the crowd."

Another day, another piece of evidence that active fund managers are no better at investing than lab rats.

This time, researchers at Bank of America found that more than 4 out of 5 managers have failed to beat the Russell 1000 index of large-company stocks so far this year. In fact, there’s been only one year in the last decade (2007) when a majority of active managers beat the market.

“It’s an incredibly competitive environment, with so many active managers looking for the next great investment, and it’s just not there,” says Alexander Dyck, a finance professor at University of Toronto’s Rotman School of Management, who has co-authored an international comparison of active and passive strategies.

Dyck’s research found that in the United States, passive strategies work better than active management. That is, mutual funds that simply mimic an index actually return more money, post-fees, than funds managed by professionals making hands-on choices about what stocks, bonds, and other assets to hold.

That finding is a big deal because people who invest in active funds—say, in their 401(k)s or other retirement accounts—typically pay much higher fees than those who invest in passive funds. Thanks to active management, stock fund investors on average end up paying more than five times as much in expenses than they would with index funds; that can amount to tens of thousands of dollars, as the chart below shows.

Screen Shot 2014-11-11 at 4.54.47 PM (2)
Source: https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost

When active funds do beat their benchmarks, that can make up for high fees (though evidence suggests even that scenario is rare). But with most returns so uninspiring, there doesn’t seem to be much remaining justification for active management, at least for the average investor. Better to stick with cheap index funds.

Of course, there are exceptions to this rule. Dyck’s research, for example, found that active managers can still beat their benchmarks when they invest overseas—particularly in emerging markets like China, where investing in companies hand-picked by a professional tends to be a better bet than investing in a basket of stocks representing every company out there.

“In countries with significant governance risks, a plain old index gives you exposure to everything, including the good, the bad, and the ugly,” says Dyck.

But even though active investing outside of the U.S. seems to work for institutional investors who generally pay lower fees, Dyck says, it doesn’t mean it’ll be worth it for you. As a retail investor, you’ll almost always pay more than the professionals.

MONEY investing strategy

5 Mental Habits That Make Investors Rich

141106_INV_DreamInvestor
PeopleImages.com—Getty Images

Don't take yourself so seriously.

If I could build a dream investor from scratch, his name would be Paul.

Paul is an optimistic a-political sociopathic history buff with lots of hobbies who takes others’ opinions more seriously than his own.

Let me tell you why he is going to kick your butt at investing.

The sociopath

Psychologist Essi Vidling once interviewed a serial killer. Vidling showed the killer pictures of different facial expressions, and asked him to describe what the people were feeling. The murderer got most right, except pictures of people making fearful faces. “I don’t know what that expression is called, but it’s what people look like right before I stab them,” he said.

Paul couldn’t harm a fly. But a key trait of sociopaths is the ability to remain calm when others are terrified, so much that they don’t even understand why other people get scared. It’s also a necessity to becoming a good investor. In her book Confessions of a Sociopath, M.E Thomas writes:

The thing with sociopaths is that we are largely unaffected by fear … I am also blessed with a complete lack of sentiment … My lack of empathy means I don’t get caught up in other people’s panic.

Paul is like this, too. He doesn’t understand why people investing for 10 years get fearful when stocks have a bad 10 days. Recessions don’t bother him. Pullbacks entertain him. He thought the flash crash was kind of funny. He doesn’t care when his companies miss earnings by a penny. He’s immune to that stuff, which is a big advantage over most investors.

The a-political investor

Paul has political beliefs — who doesn’t?

But he knows that millions of equally smart people have opposite beliefs they are just as sure in. Since markets reflect the combined beliefs of millions of people, Paul knows that there is no reason to expect markets to converge on his personal beliefs, even if he is dead sure it is the truth. So he never lets his politics guide his investment decisions.

Paul knows that political moralizing is one of the most dangerous poisons your brain can come across, causing countless smart people to make dumb decisions. Even when he is bothered by political events, Paul repeats to himself in the mirror: “The market doesn’t care what I think. The market doesn’t care what I think.”

The history buff

Paul loves history. He loves it for a specific reason: It teaches him that anything is possible at any time, no matter how farfetched it sounds. “One damned thing after another,” a historian once described his field.

Paul knows that some people read history for clues on what might happen next, but history’s biggest lesson is that nobody has any idea, ever.

When people say oil prices can only go up, or have to fall, Paul knows history isn’t on their side — either could occur. He knows that when people say China owns the next century, or that America’s best days are behind it, history says either could be wrong.

History makes Paul humble, and prevents him from taking forecasts too seriously.

The hobbyist

Paul likes golf. He enjoys cooking. He reads on the beach. He has a day job that takes up most of his time.

Paul loves investing, but he doesn’t have time to worry about whether Apple is going to miss earnings, or if fourth-quarter GDP will come in lower than expected. He’s too busy for that stuff.

And he likes it that way. He knows investing is mostly a waiting game, and he has plenty of hobbies to keep him busy while he waits. His ignorance of trivial stuff has saved him thousands of dollars and countless time.

The open-minded thinker

Paul knows he’s just one of seven billion people in the world, and that his own life experiences are a tiny fraction of what’s to be learned out there.

He knows that everyone wants to think they are right, and that people will jump through hoops to defend their beliefs. He also knows this is dangerous, because it prevents people from learning. Paul knows that everyone has at least one firm, diehard belief that is totally wrong, and this scares him.

Paul is insanely curious about what other people think. He’s more interested in what other people think than he is in sharing his own views. He doesn’t take everyone seriously — he knows the world is full of idiots — but he knows the only way he can improve is if he questions what he knows and opens his mind to what others think.

The realistic optimist

Paul knows there’s a lot of bad stuff in this world. Crime. War. Hunger. Poverty. Injustice. Disease. Politicians.

All of these things bother Paul. But only to a point. Because he knows that despite the wrongs of the world, more people wake up every morning wanting to do good than try to do harm. And he knows that despite a constant barrage of problems, the good group will eventually win out in the long run. That’s why things tend to get better for almost everyone.

Paul doesn’t get caught up in doom loops, refusing to invest today because he’s worried about future budget deficits, or future inflation, or how his grandkids will pay for Social Security. Optimists get heckled as oblivious goofs from time to time, but Paul knows the odds are overwhelmingly in their favor of the long haul.

I’m trying to be more like Paul.

Related:

Check back every Tuesday and Friday for Morgan Housel’s columns.

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MONEY Markets

Are the Media to Blame for Financial Bubbles?

Ritholtz Wealth Management CEO Josh Brown, a.k.a. the Reformed Broker, explains the relationship between media coverage and financial bubbles.

TIME Innovation

Five Best Ideas of the Day: November 3

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. “Ultimately, gender equality is a vital part of humanity’s progress. ” Read the 2014 Gender Gap Report.

By the World Economic Forum

2. Shopping for Water: Markets just might save the American West from its water crisis.

By Peter Culp, Robert Glennon, and Gary Libecap at the Hamilton Project

3. With Ebola in the spotlight, Liberia’s nurses take to the streets to care for the sick crowded out of the overwhelmed health care system.

By Jina Moore at BuzzFeed News

4. Humanitarians are preparing for a future with autonomous weapons, which are unlikely to understand mercy, proportionality or the difference between combatants and civilians.

By Malcolm Lucard in Red Cross Red Crescent

5. Markets in everything: Can letting the rich buy into clinical trials produce cures for rare diseases faster?

By Alexander Masters in Mosaic Science

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY stocks

Why It’s Not Too Late to Buy Apple Stock

Michele Mattana of Sardinia, Italy, poses with an iPhone 6 Plus and an iPhone 6 on the first day of sales at the Fifth Avenue store in Manhattan, New York September 19, 2014.
Adrees Latif—Reuters

Apple could very well have another blowout quarter up its sleeve.

It’s taken 2 years to get back to this point. After peaking in September 2012 at approximately $705 (pre-split), Apple has now climbed all the way back after its prolonged pullback to fresh all-time highs. Shares have now traded over $105, the equivalent of $735 pre-split.

Naturally, with shares back to all-time highs investors are now wondering if it’s too late to get in, or if they can still buy Apple. Let’s take a look.

Word on the Street

For starters, let’s consider the Street’s opinion on Apple. According to Yahoo! Finance, the average price target for Apple is $115, which represents about 10% upside from here. That may not seem like a lot, and it’s also a modest hurdle for the S&P 500 to clear in the next year, which determines if Apple were to outperform or underperform should it hit that average price target.

The high price target is $143. After giving up the Street high target temporarily, Cantor Fitzgerald analyst Brian White is back at the top of the list. White seems to always want to have the Street high price target on Apple, and reclaimed his title from JPM Securities analyst Alex Gauna earlier this month. The low price target is $60, but we’ve already covered how silly that sounds.

For the most part, the Street remains bullish overall, suggesting that it’s not too late to buy.

Apple pays

Re-initiated in 2012 after a 17-year hiatus, Apple’s dividend continues to climb higher as the company remains committed to returning its copious amounts of cash to shareholders. While the majority of Apple’s capital return program is being allocated to share repurchases, its still paying out hefty amounts of cash in the form of dividends.

Apple increased its quarterly payout by 15% in early 2013, following up with an 8% increase earlier this year. The Mac maker usually updates its capital return program in March or April, which is likely when investors will find out more about the next dividend boost.

Importantly, Apple’s dividend is sustainable — its dividend payout ratio has averaged 30% since bringing its dividend back.

Source: SEC filings and author's calculations. Fiscal quarters shown.
Source: SEC filings and author’s calculations. Fiscal quarters shown.

There’s no magic number when it comes to payout ratios, but generally investors prefer a figure in the 30% to 60% range. A payout ratio that’s too low may have investors asking for more, while a ratio that’s too high could potentially suggest that the company is being too generous and a dividend cut could be in the cards.

At current levels, Apple’s dividend represents a 1.8% yield. That’s less than some fellow tech giants like Microsoft and Intel, both of which yield around 2.7% right now, but it’s still a respectable yield nonetheless. There’s something for income investors here too.

Apple buys (itself)

As mentioned, the other aspect of Apple’s capital return is its massive share repurchase authorization, which currently sits at $90 billion. This is where Apple has been focusing most of its capital return efforts, believing shares remain cheap.

It should be telling that Apple just embarked upon its fourth accelerated share repurchase program while shares are at all-time highs. That’s literally Apple telling you that it thinks its shares are cheap at current prices and putting its money where its mouth is — because it’s also repurchasing shares itself. While many companies have rather bad timing with repurchases, it’s hard to argue that Apple is overpaying for itself when it’s trading at just 16 times earnings (a discount to the S&P 500).

Thanks to the resulting earnings accretion, EPS growth has been continuously outpacing net income growth by a healthy margin.

Source: SEC filings. Fiscal quarters shown.

Considering the sheer magnitude of Apple’s repurchase program, it’s also worth noting that share repurchases can drive capital appreciation. As Apple continues to amplify EPS growth through aggressive repurchases, its earnings multiple will contract (all else equal) due to a larger denominator.

If Apple’s earnings multiple contracts, shares look even cheaper, which creates buying interest. If the market is willing to simply maintain Apple’s earnings multiple, then that requires prices to go higher still.

An all-time record quarter is around the corner

Apple’s guidance for the current quarter is mind-boggling. The roughly $14.4 billion that the company expects to make over the holidays is well above what any other company in the S&P 500 is capable of producing, including oil companies. As Apple has just dramatically broadened its addressable market by launching larger iPhones (opening up a whole new world of potential Android switchers), Apple could very well have another blowout quarter up its sleeve. The iPhone and Mac businesses are as strong as ever, and the iPad’s recent woes are possibly temporary hiccups.

When the company releases its fiscal first quarter earnings in January, the figures could potentially be a positive catalyst as the quarter is expected to set new all-time records in both top and bottom lines. Shortly thereafter, Apple Watch will ship, potentially boosting investor confidence (and share prices) further.

Yes, you can still buy Apple.

MONEY retirement planning

Millennials Feel Guilty About This Common Financial Decision—But They Shouldn’t

Sad millennials leaning on desks
Paul Burns—Getty Images

Young adults aren't saving as much as they think they should for retirement. But paying off debts is just as important.

Millennials are pretty stressed out about their long-term finances, according to Bank of America’s latest Merrill Edge Report. Some 80% of millennials say they think about their future whenever they pay bills. Almost two-thirds contemplate their financial security while making daily purchases. And almost a third report that they often ponder their long-term finances even while showering.

What’s eating millennials? Student loan debt. Even the very affluent millennials surveyed by Bank of America feel held back by student debt—and these are 18-to-34 year-olds with $50,000 to $250,000 in assets, or $20,000 to $50,000 in assets and salaries over $50,000. Three-quarters of these financially successful Millennials say they are still paying off their college loans.

Among investors carrying student debt, 65% say they won’t ramp up their retirement savings until they’ve paid off all their loans. But with that choice comes a lot of guilt: 45% say they regret not investing more in 2014.

Contrary to popular wisdom, millennials are committed to investing for retirement. Bank of America found that the millennials surveyed were actually more focused on investing than their elders. More than half of millennials plan to invest more for retirement in 2015. But 73% of millennials define financial success as not having any debt—and by that measure, even relatively wealthy millennials are feeling uneasy.

Fear not, millennial investors. You’re doing just fine. First off, you’re saving more — and earlier — than your parents’ generation did. A recent Transamerica study found that 70% of millennials started saving for retirement at age 22, while the average Baby Boomer didn’t start until age 35. On average, millennials with 401(k)s are contributing 8% of their salaries, and 27% of millennials say they’ve increased their contribution amount in the past year. Even if you can only put away a small amount at first, you can expect to ramp up your savings rate during your peak earning years.

For now, here are your priorities:

Save enough to build up an emergency fund. You could be the biggest threat to your retirement savings. A recent Fidelity survey found that 44% of 20-somethings who change jobs pull money out of their 401(k)s. (That’s partly because some employers require former workers with low 401(k) balances to move their money.) Fidelity estimates that a 30-year-old who withdraws $16,000 from a 401(k) could lose $471 a month in retirement income—and that’s not even considering the taxes and penalties you’d owe for cashing out early. If you have to make the choice between saving and paying off debt, at least save enough to get through several months of unexpected unemployment without draining your retirement accounts.

Pay off any high-interest debt first. When you pay off debt, think of it this way: You’re making an investment with a guaranteed return. Over the long term, you might expect a 8% return in the stock market. But if you have a loan with an interest rate of 10%, you know for certain that you’ll earn 10% by paying it off early.

Save enough to get your employer’s full 401(k) match. The 401(k) match is another investment with a guaranteed return. Invest at least as much as you need to get the match—typically 6%—with the goal of increasing your savings rate once you’ve paid off the rest of your debt.

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