Timeless advice for young investors, originally written in 2022.
The pandemic years may have felt like a long series of bad news for investors between interest rates, inflation, and a declining stock market. That said, every cloud has a silver lining. For example, if you have a loved one who is a young adult, this is a great time to introduce them to investing for retirement. Why? Markets like this teach important lessons, and as a young adult, this is a great time to build strong financial habits. As years pass, they will inevitably face “unprecedented times” again – but with a larger portfolio and, by definition, higher stakes. If you can get a young adult started now, you can help them build a great foundation of solid financial habits.
Here are a few principles that you can teach:
Stocks Are “On Sale”
We are accustomed to thinking about buying goods on sale. And yet, we run from the equities when “the stock market” goes down. Young folks in particular benefit by buying things on sale. And it is no different with investing. With a young person’s long time horizon for investing, they can take advantage of short-term declines.
Paying attention to short-term declines can be challenging, especially for anyone living off their investments. However, declines are likely an opportune time for someone who still has 30-40 years before they need to touch their investments. That said, if they can take this market as an opportunity to create investing habits, then they will eventually establish investment habits with two dimensions: the discipline to put it in, and the discipline to keep it there!
Keep It Simple
For young people looking to get their footing, help them get familiar with their investment options and savings vehicles. After a bull market, investments can look a little expensive. After or during a recent decline, diversified investments are a better long-term decision. Use the resources on this website to explain different types of investments, including:
- Equities vs. Fixed Income
- Stocks and stock mutual funds
- Fixed income
- Owning stocks and bonds
- Real estate
All that said, waiting for the market to “bottom out” probably isn’t wise. Not only is it easy to miss, but if you are waiting for things to get worse you may miss when things get better. For young people, this is a great opportunity to teach them that saving for retirement isn’t glamorous. For most people, saving for retirement just looks like putting money into your retirement vehicle(s) of choice consistently.
If the young adults in your life have the means to get started, markets like this can represent great opportunities – not just in long-term outcomes, but also in building great habits. Consider starting the conversation with them today or bringing them in with your next meeting with your financial advisor!