Although technological advances have made it easier than ever to invest in the stock market, today’s Millennials (young adults born between 1980 and 2000) tend to be risk-averse. But this kind of thinking is misguided. Given that benefits like Social Security and retirement pensions are imperiled, it has never been more important for young people to start investing in their future financial security.
Imagine yourself in 50 years: What kind of life would you like to have? Do you want to live comfortably, with lots of money saved, or would you rather be dependent on a tiny pension, feeling pangs of anxiety with every purchase?
The choice between these two realities is an obvious one. So what can you do to achieve lasting financial stability?
Although many believe that creating a savings account is the best way to prepare for the financial future, unfortunately, that’s not the case. The truth is, interest rates on savings accounts are typically lower than the rate of inflation (annual price increases). Meaning: Money parked in a savings account actually loses value, in terms of its real world purchasing power.
So if not savings accounts, then what? Well, you should invest in the stock market as early as possible.
Don’t underestimate the potential rewards of starting to invest early in life. After all, when you start young, your money has more time to multiply in value.
For instance, if you invest $10,000 every year on the stock exchange with an annual return of seven percent, you’ll earn $4.7 million by the time you’re 65 – if you started investing at age 22. On the other hand, if you made the initial investment only at age 40, you’ll end up with just $1 million.
Although the advantages of investing young are clear, many Millennials aren’t doing so, partly because they entered adulthood in the midst of the 2008 financial crisis – the worst downturn since the Great Depression of the 1930s.
And as a consequence of the financial collapse, Millennials tend to be more risk-averse than their parents’ generation. For example, a 2014 survey on risk found that only 28 percent of Millennials’ money was invested in stocks, compared to the 46 percent invested by other generations.