Around the same time, millennials were in high school, the stock market encountered the tech crash. After, as many millennials entered into the workforce, we experienced a second financial crisis followed by the Great Recession. Due to this, a lot of millennials are concerned with injecting money into the stock market. Unfortunately, this means that a vast majority of millennials may not reach the long-term investment goals that they desire.
A number of studies have shown millennials’ are hesitant to take investment risks. A study conducted by Wells Fargo showed that more than 50% of Millennials state that they will “never” be comfortable investing their money into the stock market. Another study by Bankrate displayed that 25% of millennials see cash as the best long-term investment. Merrill Edge study found 85% would rather “play it safe” with their investments. The one common denominator from these studies is that the message is consistent, and that is millennials do not have confidence in putting their money into the market right now. Though, this comes on the heels of a period where the U.S. market has tripled off the lows from the last recession, which occurred 10 years ago.
There are one big mistake millennials are making. Historically stocks have been a great asset class for long-term investing, this is true even when we experience huge market crashes like 2000 and 2008. Millennials are relying too much on their own bad experiences of the markets and not the macro picture from the history of investments. Yes, the markets did fall in 2008, but the markets also rebounded 50% from those lows. Even with the crash in 2008, stock investors have been able to see positive portfolio gains with a number of markets doubling and tripling from those low levels.
Long-term investing has seen average portfolio returns of high single-digit percentage returns over the course of a decade. It’s very enticing to focus your attention on the large market corrections, which truly are inevitable in today’s world, but if you have long-term savings to invest for things like retirement, then a diversified portfolio can be your best chance at a reasonable return to help grow your savings.
For millennials, one solution is to start slow into the markets. Test the waters and focus on building up a portfolio position of the span of a few years.