Having witnessed the worst years of the Great Recession during their formative years, millennials can sometimes harbor serious fears over investing in the stock market. If you’re in that demographic, here’s what you need to know to overcome those fears and get in on some good returns.
Who can forget the traumatic days of the financial crisis of 2007-2009: the Great Recession? For millennials, the shattering experience of that downturn may be permanently imprinted on the brain. But that won’t serve them now, when there are good returns to be had in the Market.
So, millennials: if you’re still letting your fears of the stock market keep you out of investing your money, it’s important to explore those fears because you are literally running out of time.
And as a millennial, one of your most important assets is time: you have decades before you’ll retire, so investing right now means you can take advantage of long-term returns in the stock market.
Millennials Prefer Short-Term Investing
Unfortunately, according to the data, millennials seem to favor short-term investments. And that’s if they invest at all! According to a 2016 Schroders Global Investors Study, millennials invest for an average time span of 2.3 years. Compare that to the general population, which is 3.9 years.
While almost four years is not exactly long term investing either, it does point to a knowledge gap with millennials, who haven’t quite latched on to the notion of long term investing and all the benefits it can bring.
Millennials Should Consider Long-Term Investing
There may be several reasons for the lack of millennial presence in the long-term investing scene. Nevertheless, millennials: whatever your reason is for not investing, consider broadening your perspective. It’s the only way you’ll be able to get in on some of the returns that investors have been seeing and may continue to enjoy into 2017.
But first, here’s what you need to know about investing (other than you should probably be doing some!)…
1. First, Eliminate Your Debt
While it’s good all-purpose advice to invest some of your money, it may not be time yet if you haven’t eliminated expensive debt. Mortgages don’t usually qualify as expensive debt since, relatively speaking, credit card debt is far more offensive to your finances.
Plus, you shouldn’t count your student loans the way you would other types of debt. In fact, student loans shouldn’t stop you from investing. The rates are low on student loans, and anyone in a repayment plan might actually benefit from investing through their 401(k) plans at work. Your monthly payment might actually go down! Look for such incentives, but keep in mind that even without these “aids” to investing, it may still be worth it to invest when you have a student loan.
2. If You Want to Get Married & Buy a Home, Don’t Delay
If you have debt, (millennials, you know you do) and you have less money to spend, you’re more apt to delay getting married and buying your first home.
However, both of these rites of passage come with significant financial advantages. If you’ve found “the one” and you’ve got your eye on a home, you may want to reconsider putting off marriage and/or buying a home. Jump in!
3. Seek Out the Right Kind of Advice
One common mistake for new investors is to seek advice from friends and family. But that might be the worst strategy, since they don’t necessarily know a thing about investing. Plus, what works (or worked) for them won’t necessarily work for you.
If you want advice, find a professional who can look at your financial snapshot objectively and give you sound advice on how to approach investing.
4. Consider Risky Investments While You’re Still Young
One way to win at personal finance is to make investments that outperform the market. It’s a fact of life that you can’t do that without taking on some financial risk.
The best time to make the kind of risky investments that pay off handsomely is when you’re young. Otherwise, you won’t have very much time to recover should those risks not pan out in your favor.
The sad fact is, believe it or not, that of the millennials who do invest, their portfolios don’t reflect their age. In fact, their portfolios look too much like their grandparents’, which is to say very conservative. While there’s a reason for a Baby Boomer portfolio to be conservative, there’s not much of an argument there for a millennial’s to be so risk-adverse.
That means millennials should consider stocks over bonds at this point in life. One recent study by the Transamerica Center for Retirement Studies found that about one quarter of people in their 20s tend to be heavily invested in low-risk equities like money market funds or bonds. That’s not going to lead them to huge gains.
Investing early is one of the nicest presents you can give yourself. millennials, stop letting your fears keep you out of the stock market. And if you’re truly concerned, consult a financial advisor. He or she can explain the advantages of long term investing, guide you in where to invest, and generally make everything seem a lot less scary.
About the Author:
Catherine Tims is a finance content writer and the owner of Ivy League Content.