Young Investors Are Avoiding Stocks
The Dynamic Wealth Report
December 27, 2010
by Jay Chernoff, Editor
I don’t often read an article twice. Keep in mind, I read dozens of
financial articles every week. So, for one to stand out, it really has
to be interesting. But one article in particular really caught my
attention.
It was from CNNMoney about the changing investment habits of younger
investors… and it was shocking.
Apparently, investors under 35 aren’t investing in stocks like they used
to. In fact, only 22% of young investors say they’re willing take on a
high level of risk.
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One of the people interviewed had allocated a mere 10% to stocks.
Clearly, young investors are scared of the market and changing investment habits accordingly.
Needless to say, this is a catastrophe waiting to happen.
Remember, if you’re under 35 (depending on your situation), you should
invest up to 70% of your portfolio in stocks. So having only 10% to 25%
is extremely risk adverse.
Why the fear?
Younger investors have only been investing for roughly the last decade…
and it hasn’t exactly been a bullish decade for stocks. In just the past
ten years, we’ve seen the dot-com bust and the housing crisis wipe out
trillions of dollars of wealth. So in ten years, the market’s barely
budged and all investors have seen is volatility.
Certainly, it’s understandable to be somewhat risk adverse… if you’re
about to retire. For the under 35 crowd, there’s no excuse to be that
scared of the market.
With the advancements in medical technology, it’s very possible today’s
younger generation will live to 100 or longer. They’re going to need
every penny they invest, and then some. Who knows if Social Security is
even going to be around by then!
That’s why 4% bonds and 2% CDs just won’t cut it.
Look, the stock market has gone through rough periods. But over the
long-run, it’s almost always one of the best ways to invest your money.
Check this out…
Imagine you had invested your money in the Dow Jones Industrial Average
in 1960. You’d have grabbed a cool 1,700% return!
Not convinced? Did you know the 50-year return of the S&P 500 is
an eye
popping 2,370%!
Of course, those periods include several market downturns. You see, over
time these things have a way of working themselves out. As long as
companies continue to find ways to innovate, we’ll continue to see
long-term gains in the stock markets.
And as long as technology continues to improve, innovation will always
be right around the corner.
Here’s the most compelling part…
I’ve saved the best for last. According to a Wharton finance professor,
stocks have yielded an average of 7% per year over the last 200 years.
Over the same period, bonds have barely been able to eke out a 1% a year
average.
If you have decades before you retire, why would you leave so much money
on the table?
Hey, I’m not suggesting you run out and buy every stock you see. But I
definitely don’t suggest 70% in Treasury bonds or CDs!
The most important thing you can do is diversify. A big part of
diversification is having riskier assets in the portfolio. And the
younger you are, the larger the percentage you’ll need of riskier
assets.
I understand people are spooked by what’s happened in the markets over
the last decade. But history shows you really can’t go wrong in the
long-run in the stock market. And if you plan on living a long, healthy
life, you’ll need every penny you can get!
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In the last month, one of the top performing industries is Iron & Steel.
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Olympic Steel (ZEUS) and United States Steel (X).
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