Young Investors Are Avoiding Stocks

| December 27, 2010 | 0 Comments

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.

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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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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