Invest Now, Spend Later: Why This Generation Should Start Investing
There is a huge misconception that the best time to start investing is when you have a large amount of money.
This false ideology is also compounded by the staggering levels of student loans that keep us focused on paying debt rather than saving.
We can also add a lack of financial background or skepticism about the stock market to our empty portfolios, but that is the beauty of living in the 21st century: We don’t have to know it all to do it all.
You may also feel anxious to trust your hard-earned money in the hands of a financial advisor and/or stockbroker. In fact, you’re right. You should have control of your money.
The financial technology markets made our futures easier to plan out, especially with the emergence of automated investment management tools and web applications.
The algorithm behind these technologies will provide you with smart investment recommendations, but you still own the autonomy to manage your own money.
By remaining on the sidelines, we, Millennials, lose our biggest investment ally: time.
If you start investing while you’re young, time allows you to play out the downturns and take full advantage of compounding interest.
The power of compounding interest can result in a huge turnover in 30 to 40 years when we are seeking retirement.
At the same time, you’ve got to be ready to face downturns. That does not mean we have not already experienced them.
Millennials have lived through the economic downturn resulted by the 9/11 shock and the Great Recession sparked by the 2008 financial crisis.
However, we still need to invest smartly. If you have diversified your portfolio, the losses you will incur are nothing compared to what you have seen in our economy.
Why you should not avoid the stock market
Most of the investment decisions made by Millennials have been regarded as passive investment behavior.
As Millennials, we are not on the verge of retirement, and we do not aspire to have financial security within the short-term.
This type of behavior in our early days will cost us large amounts of wealth that could be accumulated over the years.
We can identify a leading cause for this behavior as the apprehension arising from risk, heavily clouding our judgment in regard to the stock market.
We tend to preoccupy ourselves with the idea of risk as a fixed concept. Stocks are risky, period.
Cash and bonds are safe, period. This is driving us in the wrong direction, and in reality, the only way to accurately measure risk is in combination with a time horizon.
In this sense, stocks can be the safest way to assure our financial prosperity in the long-term.
That does not mean we cannot invest safely in ETFs and mutual funds, but we are immensely limiting our earning potentials.
The cap of our incomes do not have to end with our salaries, and dividends grow a lot faster than salaries do.
When you own shares in a company, you are legally entitled to a slice of that business, and thus, a direct stake in the economy.
Companies share profits with their investors by paying them regular cash dividends that also increase with time.
You cannot participate in economic growth if your investments are solely focused on owning bonds or ETFs that pay you a fixed rate of interest.
You want to be enjoying the increasing profits of our economy.
At the same time, there is increasing potential in foreign economies as well, especially at a time when technology is booming irrespective of geographical borders.
On the downside, some may feel that foreign markets are lagging relative to the North American market, but what better opportunity to grab long-term bargains? Like I said, time is of the essence.