Source: forbes.com

Why you shouldn’t wait 10 years to think about investing

by EMILY KALLMYER

Our generation is scared of investing. Most of us remember the Great Recession, which led to the loss of 2.6 million American jobs in 2008 alone.

It was the most jobs lost in more than six decades. The stock market had the biggest single-day drop in history. Investors panicked, withdrawing a staggering $151.4 billion from stock market mutual funds.

Those numbers may be hard to comprehend. But they were very real for the people – and families – affected.

greatrecession
Protestors during the Great Recession in 2008. Source: http://www.brittanica.com

By most measures, it was the worst stock market crash since the Great Depression. So it’s no wonder that our generation is hesitant to invest.

In fact, only 28% of people between the ages of 21 and 36 think that long-term investing is important to success, according to a UBS Investor Watch survey.

“Millennials are the most worried of all generations,” the study said. “But unlike what might be expected, their concerns are very long-term in nature – retirement and their own long-term care – issues that are decades away.”

And this generation worries about more than just their own finances, but also those of their parents. Young people fear both economic collapse and making personal investing mistakes.

All these concerns amount to one seemingly reasonable conclusion: stay out of the uncertain markets.

While on the surface, this approach may seem logical, even responsible, this generation is missing out on a remarkably reliable long-term way to build wealth.

On average, the market grows by 6 to 8 percent each year. Yes, there are ups and downs, but if you look at the larger trend, the stock market has always ultimately risen.

Real-Long_term-US-Stock-Growth
Source: http://www.ritholtz.com

And for this generation, now is the time to invest. Actually, investing a small amount in your 20s can leave you with much higher total savings than another person who begins investing a greater amount later in life.

Why? The beauty of compounding.

For example, if you start investing $2,000 a year at the age of 25, with the 8 percent average market growth, you’ll have about $560,000 at retirement age.

But if you wait 10 years to start investing, you’ll have about $245,000 at the age of 65, less than half of what you could have had, according to Bankrate.

If you simply hold that money in a savings account over the same period of time, you’ll end up even worse off.

“If you’re earning one percent on your money in a savings account, you’re arguably losing purchasing power every year due to inflation,” financial planner David Blaylock said in an article published by The Week. “Growth isn’t even a possibility.”

InvestEarlyGraph
Source: intl.scotiabank.com

Where young investors often falter is when the economy takes a turn for the worse. It’s tempting to try to claim whatever money you have left.

But if you wait for the markets to inevitably recover, you’ll end up with more money than you started with, and much more than the person who took their money out of the markets partway through a crash.

The moral of the story is: don’t be afraid to invest in the stock market.

If you’re a senior lining up a job for next year, sign up for that 401k. Consider investing a portion of your new paycheck in funds that mirror the broader market. It could – quite literally – pay off someday.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s