Breaking your investment fears

Breaking your investment fears
Published: 29 July 2014
Young people are afraid of investment...

Most people born in the early 1990’s and who 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. The question is what the general impact of such a mass trend will be, on the overall investment in the market, into the future. The biggest driver of this behaviour has been identified as fear, which is not surprising, as 2000 and 2008 saw huge market crashes with parents and advisors all losing money. So, people are talked into being fearful.

In January, financial services firm UBS surveyed over 1,000 adults aged between 21 and 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 is keeping them in the family home 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, their general outlook on investments is limited and the lifetime value of investments will decrease. Education increases the individual's value of earnings, therefore with less education there is lower net capital for investment. This becomes a vicious circle.

The negative impact 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 be exponential compared with 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 emotions, but it is a 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 there is some practical advice for those choosing to invest. 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 personal needs and get to know the market better before investing.

    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 who 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, retail stocks are cheaper and when people buy a lot (at Easter and Christmas) then these shares do better. The key would be to buy these shares when they are cheaper and sell them when they are more expensive.
    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.
    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 are 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 is very low. Shares have small transaction costs relative to most other classes of investment.

    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, sell the shares. 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 own investment emotions.

    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.

    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, balancing your shares in the market. It may start with buying one share at first and generally then, when you have bought a fixed number of shares in one company, you could move on and start with the next.

    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, and good products that you understand. Large companies also tend to have a proven track record.

    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.

    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 the shares are 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. 

- Regenesys
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