Recent statistics indicate Millennials are not investing in the stock market—one study revealed that a staggering 60% of Millennials aren’t investing. This steep number isn’t surprising as many young adults have voiced their opinion about their anxiety of investing.
According to Douglas A. Boneparth, “Millennials find themselves more risk averse when talking about the stock market because of what many of us saw with the various bubbles in the 2000s.” With this staggering truth, many worry this itself could potentially rock the economy and the stock market since not as many people are contributing.
The question is whether Millennials, as they get older, will embrace investing like the Baby Boomers or not?
What is Investing?
Legendary investor Warren Buffett defines investing as “… the process of laying out money now to receive more money in the future.” The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.
There are several different ways to invest your money and receive future returns. Two popular options that keep the economy running is stocks and bonds. With a stock, you’re purchasing a piece of ownership in a company. With a bond, you are loaning money to a company.
Both can be very intimidating to Millennial’s for various reasons. However, so many investing misconceptions can be found right here and how to discover the many outlets that can assist Millennials in making smart investments for their future.
How to Start Investing
There are countless ways to invest, so this is where your research comes in handy. The better you understand your situation, the better you will be able to understand what kind of investments work best for you.
It’s recommended you start slow and steady with low-risk stocks like a 401k or even the investment apps. It’s also recommended that you continuously invest at least 5% a month and let it ride for a bit before pulling it out.
Remember to add risk gradually. You’re young; you’re investing for the long term. You have time to ride out market dips and dives. Some great options include some things you might already have. Online checking and savings accounts are one of the best short-term investments for several reasons including higher interest rates and safety your accounts are FDIC insured up to $250,000.
Next is money market accounts, which are very similar to online savings accounts, with one large exception: money market accounts typically aren’t FDIC insured. However, you actually can earn a little higher interest rate on the account versus a typical savings account.
Finally, beside stock another area that you may consider is investing in short term bonds. These are bonds that have maturities of less than one year, which makes them less susceptible to interest rate hikes and stock market events.
Once you become a stock market pro you can venture into higher risk portfolios like short sale investments. These are not recommended for beginners, but they can pay off if you’re knowledgeable of the market.
This method of playing the stock market is when experienced investors believe the price of the stock will decrease in value. In layman’s terms, short sale investments are people borrowing shares, selling high, waiting for the share to drop and then re-purchasing them for less then what they originally sold for. This can be incredibly high risk if you don’t know what you’re doing.
It Takes A Lot of Money to Make Money
This is no longer the status quo in investing. Thanks to the rise of investing apps, like Stash and Acorns, and low-cost robo-advisors, like Betterment and Wealthsimple, you can start investing with pocket change.
These apps allow you to invest in many different stocks in a low-risk and rewarding way. Users can buy fractional shares of actual stock. Many of these options have no minimums to get started, so you can literally transfer $5 from your bank and watch it amongst the market.
These options are also very helpful if you aren’t sure what to invest in. Having the option to gauge stock value in fractions is a great way to learn and further investing potential. The key here is to be patient; it’s not suggested that you pull your money as soon as you put it in. The stock market is a ride that could give big payouts, let your cash work for you.
It’s Too Hard to Understand
The stock market isn’t something many Millennials have much experience with, and it may seem like learning another language. Some have experience from working somewhere that offers a 401k as benefits, but it can still be difficult to understand how it works for them. However, it doesn’t have to be hard to understand.
There is a wealth of knowledge online that breaks down the process—Investopedia and Nerd Wallet both offer free starter courses in order to help beginners navigate this intimidating investment in future wealth. YouTube is also a great place to learn and understand investing in a more visual manner. Just be careful while navigating these resources so as to ensure you receive credible information.
There Is Too Much Risk Involved
The stock market can harbor some risks; however, there are levels that millennials can comfortably begin at. Even 401k accounts offer some risk depending on the current market. These funds are broadly diversified among stocks, bonds and other assets. The beauty of these funds is that the younger an investor is, the more money will be put into stocks.
Usually, these funds come from automatic payroll deductions which also makes investing much easier. Luckily for today’s investors the market has been going strong and steady, which offers more low-risk options like this. Also, as mentioned before, investment apps are a great way to get started with even $5.
No Risk, No Reward
All investments involve some degree of risk. In finance, risk refers to the degree of uncertainty and/or potential financial loss inherent in an investment decision. In general, as investment risks rise, investors seek higher returns to compensate themselves for taking such risks. Some risks to be aware of include business, volatility, inflation, and interest rate.
When it comes to business, if the place that your stock is invested in goes bankrupt there is little chance you’ll recover losses unless you get insurance. Volatility has to do with events that may compromise a business’s stock, such as a faulty product, or by events the company has no control over, such as market or politically related.
Finally, inflation and interest rates are something most are familiar with. When it comes to stock, inflation reduces purchasing power which is a risk for investors receiving a fixed rate of interest. Interest rate risk affects a bond’s value. If sold before maturity, the bond may be worth more or less than face value.
Though investing may seem intimidating, if you know what you’re getting in to, you can better control your investments for the greater reward. Investing sooner rather than later can open up many financial possibilities for your future.