7 Reasons Millennials Should Stop Being Afraid of the Stock Market

By Mikey Rox on 8 September 2016 0 comments

Are you a Millennial who's interested in investing? Then stop being afraid of the market. Sure, the Great Recession wiped out market fortunes during your early adulthood, but in the years since, it's roared back. Those who held steady during the market tumult made their money back — and then some. And those who were smart enough to invest when the market was at its bottom? Well let's just say we should all be a little jealous of their foresight (and earnings).

So, don't be a slave to your stock market fears. Here are seven reasons why you should be investing in equities, too.

1. You Have Options When Deciding to Invest

There are different investment options available that match your goals and time horizon. For instance, you can invest more conservatively if you're trying to save for a down payment on a house in a few years, versus investing for retirement 30 years down the road. And with increased diversification, you can maximize your investment returns while taking smaller risks.

"The more risk you take, the longer you should be willing to wait before it pays off, but you can match your investment objectives with your time horizon," says Ryan McGuiness, founder of the wealth management firm CTR Financial. "I invest my clients in a diverse portfolio of 12 different index funds to provide maximum diversification at the lowest cost, and match their risks to their goals, time horizon, and risk tolerance. You can try to learn what to do on your own or work with an adviser, but there are plenty of options out there."

2. Market Volatility Is Normal

Hands down, everyone's biggest fear in investing in the stock market is that it's going to crash and you'll lose your life savings. While that scenario can happen, a crash is not as likely as you think. In fact, it's uncommon. And even when markets crash, they inevitably come back. So, if you invest for the long term, this volatility should be much less of a concern.

Of course, Millennials are more on edge about this particular setback than other generations, because they may have experienced the financial crisis firsthand in the late 2000s with parents losing their jobs or — even worse — their homes due to the global meltdown. As a result, you probably equate the stock market with extremely high risk, but that isn't usually the case.

Lori Pinkowski, co-founder of the Pinkowski-Allen Financial Group, explains.

"A 2008-type crash occurs very infrequently; however, a 10% market correction happens on average once a year, so stock volatility is normal," she says. "Market volatility also creates opportunity to purchase good companies at a lower price. With an active management strategy, their investment portfolios shouldn't simply rise and fall with the market like they do with a buy and hold management style. It's important to raise cash and get defensive at times but then be ready to deploy that cash once risk levels improve."

3. Investing Has Never Been Less Expensive

You don't have to be rich to invest — all you need is a little bit of disposable income. Many online brokers offer low-cost or even free trades, a prospect that was unimaginable just a few years ago. You also don't have to go broke by hiring a financial adviser to navigate you through the process, which is recommended. While the cost prospect of the latter is a deterrent for some Millennials, investment adviser Jeremy Torgerson details an inexpensive — and automated — solution:

"While many investors still want the assistance of a human financial adviser to help them figure out what to invest in and when to hold their hand during market corrections, it's no longer necessary to use and pay for a human adviser," he explains. "The technology is incredible, and the robo-adviser is on duty, 24 hours a day. Or if you want a human adviser, the ability to shop for exactly the right one, in terms of service, expertise, and cost, has never been easier."

4. Investing Protects Your Money From Inflation

Think about this sobering fact for a second: The money you're earning and saving today will be worth less in the future if you keep it in a bank — guaranteed. The amount may not change, but over time, thanks to inflation, the value of your money will go down if it's left sitting in a bank account. As Pinkowski puts its, "Inflation is approximately 2% and your bank savings account generates less than inflation, which means you have actually negative real growth. If you want healthy growth above inflation over time, stocks are the best choice."

5. Relying on Yourself Is a Better Bet Than Relying on the Government

The simple reality of our current fiscal situation includes underfunded promises to Medicare, Medicaid, Social Security, and prescription drug benefits to the tune of $121 trillion and counting.

"Millennials will, in many ways, be 'stuck with the check' in later years for all the spending that's already happened, which will mean a later retirement age for Social Security, higher tax rates and inflation in the future, and, likely, reduced benefits from these entitlement programs," Torgerson says.

Considering this potential, you owe it to yourself to prepare for a government that's less able to provide for you in retirement. Of course you should be contributing to a 401K, and taking advantage of matching contributions from your employer if they offer it. But investing separately in the stock market also can fortify your ability to retire at a decent age, if not sooner.

6. Reinvested Growth Can Pay Off in the Long Run

Many stocks pay dividends, and reinvesting those dividends as well as any capital gains will benefit you over the long run. For example, if you're 25 today and invest $10,000, earning on average 6% annually, you will see your investment grow to just over $100,000 by the time you reach 65 — and that's only with a $10,000 investment today. Consider that the S&P 500 has averaged 9.6% annual returns over the last 25 years, which includes the tech bubble and 2008 credit crisis, and the growth you could enjoy might be even higher.

7. Time Is on Your Side

Of course, let's not forget that you're young, Millennials, and you have a several decades of saving and investing ahead of you — and that's a benefit that older investors don't have which can be used to your advantage.

"If Millennials are saving for retirement, their time horizon is much greater than someone older," says Pinkowski. "They have time to wait out blips in the stock market and can focus on the long term. They also won't need to withdraw any income, thus allowing the investments to grow over many years. The power of compounding can be astonishing. Albert Einstein once said, 'Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it.' Give your money a job and make it work for you!"

Are you afraid of the stock market?

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