When it comes to Millennials and their money, most Americans ages 18 to 29 would rather sit on a boat load of cash. They have a sinking feeling that investing in the stock market is like boarding the Titanic. According to a recent Bankrate.com study cited by a recent The Street article, younger people prefer cash. Of course, cash is a low-yielding investment that’s better reserved for retirees who just want don’t want any risk. How does a young person get over his or her aversion to the stock market?
- Investing instead of trading
One way a young investor can get over their fear of losing money in the stock market is by taking a long-term approach. Trading stocks is not the same as investing in the market. Most of the horror stories of people who lost fortunes occurred because they “bet” money on a penny stock instead of “dollar cost averaging” into a particular stock position. Smart investors contribute a certain amount of money on a regular basis so that they build up shares in diversified mutual funds over time.
- Not worrying about an immediate reward
A lot of younger people are used to experience immediate gratification because of our highly technical world and consumer-driven society. But investing in stocks can be frustrating in the short term if the market is not climbing at that particular time. Focus on the long term not the immediate reward.
- Diversifying from the start
When trying to figure out how to invest their money, some young people are lost. Their default option is a savings account or possibly certificate of deposits. Other investments include bonds, real estate, commodities, futures, options, precious metals such as gold and private businesses. These should not be your default option and can be risky and or give you very low returns long term. One way to have a diversified portfolio is by choosing a mutual fund that already includes a variety of different stocks in different sectors and countries and also short term bonds. You can hold highly diversified mutual funds within a 401(k), Roth IRA or many other retirement or regular investment accounts.
Sitting on cash is the equivalent of putting gold under the mattress or burying it in your backyard. Millennials are too smart not to find better ways to invest their money.
By Financial Social Media and Jimmy Hancock