A bad hangover

Why aren't Millennials investing in the stock market?

Akin to the morning after a rough night, it appears as though Millennials haven’t recovered from one of the worst recessions in history. Becoming “of-age” at the peak of the 2008 financial crisis, Millennials were painfully exposed to a historic stock market crash, housing market crisis, and massive unemployment spike. The lingering effects of such an event have shaped the habits and behaviors of this generation, and not necessarily for the better. But, is this the only reason Millennials are avoiding stock investing?
 
According to a study conducted by Bankrate[1] in 2016, 65% of Millennials said they do not invest their money in stocks or mutual funds, both inside and outside of retirement accounts. While the financial crisis has certainly contributed to some of the anxiety, I would argue that a lack of education, limited income, and a misunderstanding about the benefits of time in the market, contributes heavily to Millennial’s lack of desire for investing.

Sine, Cosine, and Tangent? 
I remember in High School when I finally mastered the concept of Trigonometry. At the time, it felt like I could conquer the world; little did I know the mathematical concept would have very little relevance in my adult life. Financial planning fundamentals should be incorporated in mainstream curriculum, but it simply isn’t. Oftentimes, Millennials first experience with investing is at their first full-time job. When the HR department gives them a booklet explaining the benefits of 401(k)s, target date-funds, index investing, and compound interest. Huh? No wonder Millennials would rather opt out of retirement plans. They don’t understand where that deduction in their paycheck is going.

Investing is for rich people 
Before working in the financial industry, I viewed investing as something that people with a lot of extra money engaged in. To me, financial planning was a service reserved for the wealthy and uber-wealthy. As a Millennial, we aren’t there yet. But that doesn’t mean we can’t start somewhere. Investing can be relatively simple, and can be started with very little. With a basic understanding of the mechanics, just a few dollars here and there could make a significant impact on your future. Access to investing is also becoming more convenient. With the rise of millennial financial planners and robo-advice platforms, the options are endless.

Getting old is a drag, man… 
It’s true. Millennials are young, and the world is their oyster. Retirement is a distant relative that you don’t think about much, but you definitely should. Starting early can mean major gains in the long run. The concept is compound interest, which means interest that grows on top of more interest. As you can see from the graph below, starting early can literally mean a difference of thousands.

This is a hypothetical example and is for illustrative and informational purposes only. No specific investments were used in this example. Actual results will vary and are subject to change. Past performance does not guarantee future results.

In the end, it’s about resilience 
Take the plunge. Use your exposure to the 2008 financial crisis as a lesson. Markets can come back. As Millennials, you are smart, thrifty, and inquisitive. Take these steps in preparing yourself for investing for the first time:
 

• Step 1: Build up your emergency fund. With a cash cushion in the bank, your financial capacity to invest can be much greater.
• Step 2: Talk to an advisor, ask questions, and do your research. Before making an investment decision, it is important to be informed. Since you didn’t have the luxury of getting formal education on this subject, it might take more effort on your part.
• Step 3: Take advantage of ideal investing opportunities. A company retirement plan is an excellent way to gain exposure to investing while automating your savings plan. 

Jake Rivas, CFP® is a financial advisor and CERTIFIED FINANCIAL PLANNER™ at i*financial located at 1901 NW Military Hwy Ste. 102, San Antonio, TX 78216. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 210-342-4346 or by email at jake@youandifinancial.com.

​[1] Bankrate Money Pulse survey, June 16-19 2016