Sunday, November 30, 2014

Young People Need Not Fear the Stock Market ... Its Lifetime Benefits Are Huge

The numbers tell the story. At age 65, money invested in the stock market at age 22 will become more than 6 times greater than that same amount of money not invested until age 50.

The conclusion is simple and the consequences are huge. Nevertheless, our young people still aren't investing in stocks for their future financial health and security. That has to change.

Many oldsters now wish that they would have known as youngsters that which we now know to be true. But now it's too late.

However, it's not too late for the young to avoid the simple unforced error of not balancing the legitimate needs of our future selves with the desires of today. So let's look at what the young should be doing with respect to achieving old age financial security and independence the self reliant way.

All that's required is that when we begin our working years, we immediately initiate a regular pattern of saving and investing a portion of our earnings in stocks for the long haul. Of course, that also means foregoing the 'opportunity' to splurge, spend and borrow to the hilt.

If the young will just do that, the stock market will be their long term friend, and in the long term financial security and independence will be theirs.

An open letter to millennials: the market is your friend contains some sound advice from one young person to another:

"A recent study. . . shows that U.S. adults under age 35 spend, in aggregate, 2% more than what they earn. This finding has been the subject of much hand-wringing about (millennials), which is sometimes defined as anyone born from 1980 to 2000.

But people are concerned for the wrong reason. Our savings isn’t the problem; it’s our attitude toward stocks. . . . 52% of millennials are “not very confident” or “not confident at all” in the stock market.

When we invest on our own, we put 59% of our assets in cash and bonds, and 28% in stocks, a recent survey by UBS Wealth Management found.

“This is directly counter to traditional long-term investment allocation advice,” which is that younger investors can afford to take greater stock risk when investing for retirement because they won’t need the money soon, UBS notes.

Our attitudes are important because many of us are expected to play a different role in investing for retirement than some older generations, who were more likely to have a workplace pension. . . .

We millennials have time on our side. It’s an asset older investors can only dream about.

We have time to endure market crashes. We have time to not care about what the market is doing this month, this year, or even this decade. We can tune out the noise and take the long view. The stock market is practically made for people like us.

Since 1871, the stock market has earned an average annual return after inflation of 6.8% . . . . During that period, there were 29 recessions, a Great Depression, two world wars, a flu pandemic, various financial crises and multiple market crashes. Past performance doesn’t guarantee future returns, but 6.8% a year is as close as we have to a benchmark for what to expect over the long run, chaos and all. . . .

Starting at age 22, every dollar saved compounded at 6.8% annually will be worth $16.90 by age 65. Start at age 50, and each dollar is worth $2.70 by age 65."

Summing Up

Time lost is gone forever. And with respect to young adults beginning to save and invest in a basket of high quality stocks, that's especially true.

So if you're still young, start a lifetime habit of consistently saving and investing a part of each paycheck in a diversified portfolio of blue chip stocks for the long haul.

And if you're now among the older and 'wiser' ones, please tell the younger ones to get going down the path to financial security the easy and painless way.

And because time flies, make sure they realize that they need to start down that path now.

That's my take.

Thanks. Bob.

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