“Investment strategy” is one of those things you know you’re supposed to master in order to officially join the world of adulthood. But it’s easier said than done: After all, you’re still figuring out how to fit your morning coffee habit into your monthly budget.
Many young adults believe that simply putting a portion of their income into a savings account is enough; because “saving” is something that’s drilled into our heads at a young age, and financial literacy education is often absent from most kids’ schooling.
So it makes sense that a lot of young people are confused about why investing matters — and thus, hesitant to hand over their hard-earned money to “the markets.”
Part of the reason for this is simply that young adults don’t know the first thing about investing. Below, we explore a few of the basics: Why investing as early as possible is beneficial to long-term financial goals, as well as a few tips for getting started.
Investing sets you up for long-term security
Cash may be more “comfortable” for risk-wary millennials — but the simple truth is that watching savings accumulate just doesn’t cut it in the long run. In fact, interest rates are at historically low levels, Bloomberg states, which means that your money sitting in the bank isn’t doing you any favors in the long run. Investing is one of the only ways to outpace inflation rates; almost nothing is a substitute for compound interest when it comes to saving for the future.
While the majority of investors from other generations believe long-term investing is a key to achieving success, only 28% of Millennials do. With Millennials having less faith in long-term investing, they plan to work harder and save more to reach their goals.
And what this really means is that young people who fail to invest are setting themselves up for a retirement crisis. They’ll need a substantial nest egg to maintain their standard of living in retirement — everything from being able to afford their beloved avocado toast to making rent that meets the rates of inflation. (Even with conservative estimates of inflation, housing is likely to cost around 60% more in 30 years’ time.) Without investments as a source of income, they’re also more likely to feel dips in the economy long before retirement — and they’re not taking full advantage of a healthy market, either.
“The market” isn’t as scary as it seems
In the aftermath of the recession and the dot-com bubble burst, many potential investors — young people in particular — don’t trust the markets.
Since 2003, the stock market has actually yielded positive total returns.
This distrust is misplaced, however. In fact, since 2003, the stock market has actually yielded positive total returns in every calendar year except 2008, the Wall Street Journal reports.
Even for young people who feel as if retirement is a distant concept they don’t yet need to worry about, investing early has major benefits even in the shorter-term. For example, young people are especially good candidates for higher risk/higher reward investments — i.e. investments that have a better chance of a big payday. And if investments don’t work out as planned, there’s plenty of time to recover; later in life, this simply isn’t the case.
The first step, it seems, is for young people to take the time to educate themselves. This involves a bit of effort: Signing up for respected industry publications or even enrolling in an online financial literacy course are solid first steps. Going old-school and actually purchasing books (ebooks are just fine) to learn how to set yourself up for financial success shows even more initiative. Seeking help from financial reports can also be helpful, and can take out some of the guesswork. There’s no shortage of resources out there for those hungry for a little financial education.
Which means there’s really no excuse. Young people: It’s time to learn the basics of investment strategy — your financial future is at stake.
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