Many millennials don’t yet feel confident about the idea of investing. If that’s the case for you, know that you’re in very good company. Young professionals who started their careers amidst the post-2008 recession unfortunately happened to graduate into a very tough economic environment, an experience that has left many millennials feeling reluctant to invest money in the stock market. In one study, millennial investors ages 22-32 said they preferred to keep 75% percent of their retirement savings not in the stock market.
For a generation who spent their college and early working years in the midst of a significant recession, the motivation to be conservative with money is understandable. However, not investing in the stock market will actually hurt your finances in the long run. Here’s why, and here are five things millennials need to know about investing in order to get started on the journey!
- The stock market remains, quite simply, the most effective vehicle for long-term wealth creation. Investing in stocks as part of a well-balanced portfolio is the best way to help your money grow over time. You work hard for your money, so shouldn’t it work just as hard for you?
- Over time, the trend is positive. The stock market is volatile – that’s part of the tradeoff for higher potential growth. There will be up days and down days. There will be up years and down years. The short-term static is actually just noise. The key is that over many years, the trend is smooth and upward – given enough time, your wealth can grow.
- In the long run, you can’t afford to miss out. The long-term average rate of inflation is about 3% per year. So if your savings aren’t growing at least at that rate, you’re actually losing money over time. Yet, savings accounts today typically earn less than 1% in interest – not even keeping pace with inflation.
- No, you shouldn’t wait until you “have more money.” Right now, you have the most important asset of all on your side: time. As a millennial you have thirty to forty years or so to prepare for retirement. Invested in a well-diversified portfolio, even a small amount can have a huge impact over that time frame. Don’t put this off until later. Once you’re free of high-interest debt (like credit card debt) and have started an emergency fund for a rainy day, it’s time to start investing.
- The first step of any investing journey is educating yourself. To take control of your financial future is one of the most important and empowering things you can do for yourself. Get yourself to a place where you feel more comfortable and confident to start your investing journey. Look into online resources or check out books on investing basics. If the jargon seems confusing at first glance, don’t let that deter you. Learning finance terms can be like learning another language! No one is born understanding this; we all have to learn sometime.