Here's why millennials are afraid to invest in stocks.
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Millennials are having a hard time with investing. They are generally more cautious when it comes to choosing investments as well as starting to trade stock. Millennials also do not fully trust investing, since 30 percent believe that cash is the best and most efficient investment. With the recent volatility in the stock market, millennials may be questioning the value of investing in stocks. In fact, 57 percent of millennials say they will never invest in any form of stock due to the high levels of volatility around the outcome. Millennial investing is scarce. 

Why the hesitation around investing?

Many millennials remember the stock market crash of 2008. The anxiety that our parents felt during that time has crept into our current economic era. That 2008 crash was caused when the Dow Jones Industrial Average fell 777.68 points in a single day. The Dow is a stock market index that represents the U.S. economy within three categories: transportation, industries and utilities. That 2008 drop was the largest drop in history… until the one earlier this year. The effects of that first sudden crash can still be felt. For millennials, memories of 2008 have led to a tentative behavior in actually investing as well as a large distrust of financial markets.

Last week, the Dow fell to the lowest point in two years. In the beginning of February, the stock market lost $1 trillion dollars in value. This led to a rapid market sell-off. The sudden, dramatic turn of events gave millennials even more of a reason not to start investing. But you shouldn’t panic. The stock market has not truly crashed this early in the year. In fact, the market is back up currently. If anything, this sudden volatility is a lesson for millennial investors. Volatility refers to the increases and decreases in the price of securities in a certain circumstance. The market is unpredictable, but that shouldn’t scare you away from investing.

How can we get millennials to invest?

Millennials are working toward paying off student debt, while saving for future families and retirement. They often do not have a lot of money lying around to invest. However, investing does not have to start with an enormous amount of money. New smartphone apps make it easy to start an investing career with as little as $5.

Education around investing is also important. In general, millennials have a low financial literacy. If you are in college and can afford it, enroll in a financial class. You can also take advantage of affordable online education programs such as Coursera. This way you can ensure you choose worthwhile investments.

If millennials don’t invest, they may lose out on retirement funding. If we assume an annual raise of 3.7 percent, a 25-year-old now earning $40,456 annually who puts 15 percent into stocks yearly would accumulate $4.57 million by the time they turned 65. This equation makes it seem unwise to not invest at least some part of your income, even with the fears of volatility.

Takeaway

Millennials are scared of investing. It is largely a fear left over from the 2008 recession that affected our parents, but this worry of possible loss of funds is resulting in the loss of potential retirement money for millennials. It is understandable that millennials are hesitant to invest the little money available to them once they pay off student loans. However, we as a generation are missing out. Investing even a tiny amount of income can have huge benefits down the road. Despite the uncertainties, investing does not need to be so terrifying. With a little more financial education, millennials will soon understand why it’s smart to invest.

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Posted 03.01.2018 - 10:00 am EDT