The Millennial Generation: Challenges With Investing
The Millennial Generation, more commonly known as Millennials, are those born between 1981 and 1996, who are currently in their mid-20s to early 40s. As this group comes of age, they are confronted with a different financial reality than their parents or grandparents faced. Millennials have witnessed ups and downs of the stock market, endured the Great Recession, graduated from college with staggering student-loan debts, and experienced lower wages while costs such as housing, medical care, and education, have risen.
Given all these factors, Millennials are less-inclined to invest in the stock market than their predecessors. Many feel overwhelmed and unprepared because they lack the skills and financial literacy to identify their risk tolerance and develop their strategies.
The Reality: Benefits of Investing in the Stock Market
Millennials are faced with unique financial problems and although they are slow to start investing in the stock market they may be missing out on its incredible growth potential. Investing in the stock market offers seniors, in particular, the opportunity to see a bigger return than what is offered by conventional savings.
For millennials, the advantage of investing in the stock market is long-term growth and security. With regular contributions to an investment account, over time, these individuals can build a sizeable nest egg for retirement or other needs. With no or very low expenses and the power of compounding interest, not investing can have a huge impact on your retirement savings and long-term peace of mind.
Potential Challenges Investing in the Stock Market
Many Millennials may not be investing in the stock market due to lack of knowledge, incorrect beliefs, and fear of loss. Investing can be complicated and investing without understanding the process can lead to significant losses. There are several ways that Millennials can ensure they are investing prudently and avoiding major pitfalls while building wealth:
- Set Realistic Goals
Before investing in the stock market, it is essential to understand your goals and develop a plan to reach them. Questions such as how much money do you want to invest and when do you need to access it should be answered. Understanding your financial goals will help you make more informed decisions when planning to invest.
- Understand Your Risk Tolerance
Investors should understand their risk tolerance and tailor their investments accordingly. Investors who are less tolerant to risk should focus primarily on conservative, low-cost index investments. Those with a higher risk tolerance may consider investing in mutual funds.
- Educate Yourself
Investing in the stock market is not a get-rich-quick scheme and requires a foundation of knowledge and experience. Investing without too much risk requires understanding of fundamentals such as risk preference, market dynamics and how to use the right investment tools to build a portfolio geared to the investor’s goals.
- Start Small
It is important to start small and increase your investments when and as you become comfortable with the process. Consider diversifying and investing in several low-cost, diversified ETFs or mutual funds.
- Monitor and Adjust
Investors should regularly review their portfolio and adjust their assets as needed. As you become more comfortable with trading, you may decide to expand into individual stocks and ETFs. Investing in the stocks in a disciplined and systematic manner is the key to building wealth over the long-term.
With caution, Millennials can and should consider investing in the stock market. There are multiple options, such as mutual funds, exchange-traded funds, and individual stocks, that require varying levels of research and effort. The important thing to remember is to do your research and understand what you’re getting into. Consider partnering with a financial advisor, who can help you make sense of the opportunities and assist you in integrating them into your financial plan.
Millennials tend to be technologically savvy and with the right guidance, they can become just as financially savvy. Investing on the stock market provides ample opportunity to grow wealth over time and should considered as part of any retirement plan. With relevant knowledge and understanding, Millennials can stay on track to make the most of their options and secure their financial future.
