Breaking your investment fears

Young people are afraid of investment.


Most people that were born in the early 1990’s and that are entering the real world after studies and graduation have only experienced recession and negative news about markets. Research is showing that millenials are not investing in the stock market and to some extent this is asking what the general impact of a mass trend like this in the overall investment in the market will be into the future. The biggest driver of this behaviour has been identified as fear.


It is not suprising as 2000 and 2008 saw huge market crashes and parents and advisors all lost money. So people are talked into being scared.


In January, financial services firm UBS surveyed over 1,000 adults ages 21 to 29, and found that millennials devote less than one-third (28 percent) of their portfolio to stocks and over half (52 percent) to cash while non-millennials keep almost half of their portfolio (46 percent) in stocks and less than a quarter (23 percent) in cash.


Why is this generation avoiding stocks? Young people should seek the higher returns in shares, rather than cash – which has no value and in fact loses value due to ever increasing inflation.


The increasing cost of education is also discouraging people from studying and keeping them at home with their parents for longer. This taxes the previous generation, while also limiting the millennial generation. Indications are that because people are not moving into independence at an earlier age, that this limits their general outlook on investments and will decrease the lifetime value of investments. Education increases the value of earnings of an individual over time – so with less education there is lower net capital for investment. It starts a viscious circle.


The negative to this again is that millenials will have less money when they retire – while living longer due to medical advances. Early indicators of this can be seen from the net healthcare impact of the baby boomer generation. There are more people in the millennial generation and the global impact of the trends in this generation is expected to exponential compared to the baby boomers.


It is tempting to think of this as a US based phenomenon but evidence suggests that this trend is surfacing in most market economies.


If you are a millennial – is there hope? The answer is yes!


The key is to understand that the market is not driven by your emotions – but it is mechanism for millions of people to participate in the companies that serve the needs of others. It may be scary and feel like gambling but in choosing to invest there is some practical advice. Please note that this is not financial advice or specific stock recommendations and that it is best to speak to a financial planner to look at your needs and get to know the market better before investing.


  1. Choose stocks where you understand what the company is doing. You understand that you buy airtime – so why not look at telecoms stocks. You also understand you have to buy groceries – so why not look at retailers – as they sell groceries. We all keep money in banks so why not invest in them. These are typical consumer stocks. Once you start investing in these companies you can see that when times are tough, then retail stocks are cheaper and when people buy a lot (like at Easter and Christmas) then these shares does better. The key would then be to buy them when they are cheaper and sell them when they do better.


  1. Buy something. Just thinking about investing is mind-boggling but the best is to buy some shares and see what happens. You have the ability to become a part owner of some of the largest corporations in the world today by buying shares. Most people do not realise that this is what shares really are.


  1. Realise that stocks go up and down. The classic response to buying shares is that as soon as you bought them you see that your balance is negative. This is to be expected. There is always some transaction costs. If you look at the transaction cost of property, it can be as high as 10% but with shares the real transaction cost very low. Shares have small transact cost relative to most other classes of investment.


  1. Have an idea of what you expect before you go in. If you think that the company is going to go up then decide that you want to sell at a specific level. Once it is there then sell it. The discipline of sticking to a plan is good for investment. If you follow this advice you learn the limits and you start understanding your investment emotions.


  1. Don’t sell too soon. If you are investing in large companies that are in good sectors – then you must realise that sometimes stocks will go up and sometimes they will go down – but on average they tend to go up over time. Companies employ managers to grow the business. When there is poor management and shares do not grow – managers are replaced. New management will help shares grow. This may take some time – but do not despair – your money will grow in time.


  1. Buy more than one share. If you can build up some different shares over time, you will diversify your portfolio and will experience less risk in individual stocks. When one stock goes up, the other goes down and on balance you shares in the market. It may start with buying one share and when you have bought a fixed number of shares in one company, then move on and start with the next.


  1. Consider investing in large companies. It is not to say that small companies do not make money but when you are trying to break your fears – it is better to invest in large companies with lot of customers, good products that you understand. Large companies also tend to have a proven track record.


  1. Re-invest. If you get dividends and you take profits on investments – you must look at how to keep your capital active. Money that stands still disappears. Money that is not working for you will be spent on things that do not get a return.


  1. Do not invest money that you cannot afford to lose. The worst may happen and you may lose money. With reward there is risk and with risk there is reward. It could happen that you lose money. This is not something to be scared of. You will gain money if you are patient over time. Most people sell shares when they think it is going down. This is a time when you should consider buying more shares. You can afford not to buy some things that you do not really need. Use this money to invest and you will be surprised how well you do over time.


Investing should not be something that frightens you. It is an opportunity to free and liberate yourself. To start making money – you need to do something with your money to make it work for you. Investing is important for everyone and breaking your fears and starting today will make all the difference.