Millennials: Here’s The One Stock Market Trend You Need To Know
Courtesy: Chris Li / Unsplash.com
I’m 28 years old and, this past year, I’ve been studying value investing.
“Why,” you say, “when you spend the majority of your time being a millennial, would you ever want to bore yourself with something like value investing?”
Simply put: It’s a strategy for participating in the stock market. WAIT. Before you tune me out and head back over to Buzzfeed’s 21 Funny Posts About Drinking — let me try to explain why:
First of all, yes, I have student loans. No, I’m not rich. Aside from being a huge nerd, much of my interest comes from never wanting to feel ‘in the dark’ as I move throughout my career and, ultimately, into retirement. I never want to be sitting quietly in front of an advisor or planner thinking, ‘well, they seem like an expert — so I guess I should probably take their word for it.’
So, this morning as I was standing in the shower, drinking a cup of coffee out of a free mug given to us by our apartment complex here in Denver (obviously I’m not yet retirement-ready), a question came into my head:
I wonder how many millennials have anything in the stock market.
When I say ‘in the stock market,’ I’m NOT talking about slicked hair, thick ties and scenes from Wall Street:
For this case, I mean anything — including an employer-sponsored retirement plan or Roth IRA. Anything that somehow makes its way into the market, whether you actively manage it or not.
Turns out, the numbers aren’t real good.
Millennials are considered to be those who, during 2015, were somewhere between 18 and 35 years old. According to a report from Bankrate, a majority of this crew doesn’t have a dime invested. In fact, the survey of 1,000 representative adults showed that it’s actually more like 2/3 of us that don’t.
Millennials With Anything In The Market
- Yes: 33%
- Lolz, Nope: 65%
Side note: For the record, that last 2% said “don’t know” or refused to answer…which is a whole separate and worrisome issue. Alas, it gets worse. The younger side of that demographic (18 to 25) raises the “No” camp to a whopping 82%.
Hm, ok. Why?
Spoiler: We have our reasons…but it doesn’t mean they’re good.
Reason 1: “I Can’t Afford It”
The most popular response (from this same survey), when asked why they don’t was, “I don’t have the money.”
One 22 year old participant was quoted as saying:
Seeing a cut in my paycheck, even though it was very small” was a reason not to participate in a workplace retirement plan.
Whatever dollar amount it was — from her perspective — it was little enough to be considered ‘very small’ to her. This still influenced her decision, despite the fact that her employer may very well have offered her essentially free money, every paycheck to participate (something called employer matching).
The issue with thinking this way is that it assumes that being able to invest is about having excess dollars versus existing percentages.
What I mean by that is this: Waiting until you feel as though you have enough to invest will leave you with nothing. Unless you win the lottery, you’ll never feel that way. As humans, we get used to a quality of life that matches the amount of our consistent income that we allow ourselves access to. For many, that’s the whole paycheck. The key to basic retirement investing is not using the excess amount that is left over. It’s about establishing a percentage of what you already make, and automatically investing that (before you even see it in your bank account) into an account.
It works no matter how little or big your paycheck is.
Will it seem slightly tight for the month or two it takes you to adjust? Maybe (you may be surprised), but here’s a similar question: When you get a small raise or work a few extra hours, how quickly and effortlessly do you spend that money? Does it feel like you’re any better off? Getting used to not spending that small amount will happen just as quickly. The percentage approach proves the “I don’t make enough” argument wrong, correcting it — should you still decide not to invest in yourself — to “I’m simply not willing.”
Reason 2: “I don’t understand it.”
The survey identified the second top response as to why millennials don’t invest as “I don’t understand it.” I would argue that this is actually the real reason (since not understanding it results in the assumption that you can’t afford it).
It’s clear that so many of us don’t understand how it works — as is evident by the survey. It’s so clear that nobody has effectively explained compounding interest to us, or how simple (and beneficial) long-term wealth planning and retirement strategies can be.
Nobody comes knocking on our front doors to tell us that. Why would they? Who would that even be? It’s not ‘imaginary money teacher’s’ fault — it’s ours. Too many of us millennials know we should be doing something but we either don’t care or are too intimidated to find out what that is.
It results in us lazily assuming we’ll figure it out when we’re hit with some wave of adult wisdom, or even worse — quietly panicking as each year goes by, while downplaying the reality.
Reason 3: “It’s Too Risky — A Gamble.”
The next most common reason given by millennials was that investing in the stock market is essentially a gamble. Investing is not the same as gambling. In fact, Benjamin Graham and Warren Buffett (the godfathers of value investing) would straight-up poop their pants twice if they heard us use the term ‘gambling’ that way.
‘Gambling’ when it comes to investment is, for the purpose of this conversation, more commonly referred to as ‘speculation.’ It’s basically the process of buying or selling stock based on your gut, or how you think or feel like it will happen. It’s an often emotional, insufficiently calculated attempt to chase the next big thing.
In his book, The Intelligent Investor (spoiler: it’s on my reading list), Graham essentially says that investment is the process of minimizing risk, not betting on it. That’s a whole separate post to dive deeper on, though.
Value investing and even basic retirement investments involve an extremely low, calculated level of risk. If you want to gamble, go to Vegas. You won’t find it in responsible investing.
Reason 4: “I Don’t Trust Brokers.”
The next reason given was a blatant lack of trust for greedy Wall Street slime balls, creeping to steal your money. A broker relationship is the same as any business relationship. There are good ones and there are bad ones. If you’re a young millennial these days, you probably won’t even have an advisor (human) that you work with. You may, but you don’t need it to get started. These days, you can make incredibly sound investments without so much as talking to a human being — if you’re willing to take the time to study, learn which funds have performed consistently over the years and trust yourself.
Never make a decision on fear. There are always ways to get more information and better equip yourself.
Nobody is forcing you to put money into anything until you’re certain and ready — and if they are — smack ’em, scream for an adult and run.
Unless we choose to get over our fear of the unknown and any assumptions we have (whether they were planted by movies, friends, parents, politicians, professors or anyone else) — it will bite us in the ass, big time.
So What’s A Millennial To Do?
Life Disappointment #13: Enchanted bags of money don’t magically appear when we decide we’re ready to retire.
Unfortunately, for a lot of us, retirement savings and investment risks quickly becoming a classic case of ‘too little too late.’ Responding is not as simple as ‘Well, I don’t want a lot of money. I’m not about that.’ I don’t care if you’re the most simple, down-to-earth person the thrift store underwear aisle has ever seen. That’s fantastic, but we will all need something, and it ain’t gonna come by throwing that extra cash from happy hour in a savings account each year. We won’t get there by figuring it out ‘when we’re adults’ either.
We’re not dumb. Nobody walks into the world with a working understanding of retirement plan options. The Gen X’ers are only just now able say ‘most of us are doing this’ (51% of them). Think about it — just a matter of years ago we used to not even know how to write a check.
The most important factor to our financial success is not how much we invest. It’s how soon we start.
Double digit returns aren’t standard, so we need to start now. Most people don’t have an interest in learning how to research stocks, or the process of assessing which ones to buy and when to sell them. You don’t have to. There are stupid-simple and easy ways for us to invest incredibly small amounts now that, if ya don’t touch it, will grow consistently with a jaw-droppingly low level of risk.
Relax. You don’t have to be a banker. You don’t even have to spend 1 minute a month on it. Don’t let a lack of knowledge today scare, lull or intimidate you into ignoring your future. It’s a cop-out.
It’s not half as confusing as it seems from the outside. It just starts with making small, incredibly easy moves — right now.
Not every post will be about this type of thing but, hopefully, sharing some of this in a way that is understandable will help make it seem a bit less intimidating and a bit more approachable for someone out there.
Please Note: None of the statements made in any of my posts are intended to be professional financial or investment advice. Get excited and have fun, but be diligent about carefully assessing any opportunity before you invest.