When it comes to the millennial generation, everyone has an opinion. More often than not, these opinions are a mixed bag depending on who is asked. On one hand, millennials are known to be overly entitled, selfish, spoiled and addicted to their phones –– the “selfie generation”. Alternatively, it has also been said that they are hard workers, tech-savvy, determined and transparent. While it can be hard to reconcile these two extremes and agree on the stereotypical characteristics of millennials, studies show that at least one attribute is universal: millennials are seen as bad investors.
Last year, a Bankrate survey showed that just 26 percent of people under the age of 30 are investing in stocks. Instead, young adults are keeping their money in checking or savings accounts for fear of stock market crashes, economic recessions and job market downturns. Millennials seem to think that allocating their funds into bank accounts is the safest option for their futures. However, by sitting out of the stock market, they’re likely missing out on years of potential growth.
This generation has the potential to be great investors. Millennials now make up the largest share of the American workforce, surpassing Generation X. These young adults also save more of their paychecks than any other age group. With the right resources and advice at their fingertips, millennials can stop shying away from the stock market and start strategically saving –– and growing –– their money through investments.
Knowledge is Power
Understanding the intricacies of investing in the stock market takes time, effort and patience to fully comprehend the ins and outs of investing and what happens to one’s money throughout the process. This is most likely why 34 percent of millennials said they don’t know how to start the investing process. In the same survey, 69 percent of the age group said they find investing confusing.
These hurdles may be overcome by embracing the technology-adept stereotype that millennials are best known for –– they literally have a world of knowledge at their fingertips. With the rise of robo-advisors and other financial technology tools, getting started on an investment platform can be as easy as downloading a smartphone app. With a plethora of websites available online to breakdown investing basics, millennials would benefit from setting aside some time to do additional research.
Risk and Reward
A common misconception about the millennial mindset is that these young adults are living by the “you only live once” motto, coined in a popular 2011 song by Drake. In reality, millennials are the most risk-averse generation since the Great Depression. With this impacting how they approach investing, millennials are missing out on the opportunity to capitalize on the most important factor they have on their side: Time.
Investing does not have to equate a high risk/high return attitude, but it does need to weigh in the benefits of long-term investing. Even with a risk-averse outlook, millennials can utilize a low volatility investment strategy to get themselves involved in the stock market without giving up their sense of security. For those sitting on the sidelines because they’re worried about market downturns and the impact negative returns will have on their portfolios, there are studies showing that for the past two decades, low volatility strategies are among those that have outperformed the market.
To make the most of their investments, though, it’s vital for millennials to start building a portfolio sooner rather than later. Each year that passes is a missed opportunity for their future financial growth.