Monday, August 10, 2015

Attention Millennials ... Buy Stocks for the Long Haul

For the long haul, the risk associated with not owning stocks is far greater than the risk involved with owning them. That's a little known and perhaps even counter intuitive fact, but it's absolutely true.

Risk is simply a four letter word describing various potential uncertain future outcomes. There is the risk of eating or dieting too much or too little, sleeping too much or too little, exercising too much or too little, and so forth. Risk is.

And so the 'risk' factor is always present when individual savers and investors are saving and investing in order to have enough money come retirement time.  But one fact is certain --- the overwhelming historical evidence shows that stocks over the long run will outperform all other investment vehicles by a wide margin. Why else would we invest our money in stocks if the return were not greater? No reason at all.

To repeat, that's not conventional thinking, of course, but nevertheless it's true. So how are our young people doing with respect to putting enough of their retirement savings in stocks. Not well, unfortunately.

Millennials are saving ---- but they're doing it wrong has this information and advice for millennials and other individual investors:

"Growing up during an economic downturn scared 20-somethings into saving — but they’re also too skittish to do much with the money they’re socking away.

About 85% of millennials are putting away a portion of their paycheck, according to an online survey . . . published Friday. That’s a larger share than the roughly 80% of their parents, grandparents and slightly older brothers and sisters who save, the study found.

Young adults’ propensity to save is likely the result of coming of age during the Great Recession, when they watched the financial crisis clobber their parents’ retirement accounts and struggled themselves to find decent paying jobs even with college degrees . . . . There’s just one problem, however: That skittish mentality has pushed 20-somethings to keep their money in the modern equivalent of under the mattress or in checking or savings accounts where it accrues little interest, instead of investing . . . . Just 26% of Americans under 30 are investing in stocks, an April survey from personal finance site Bankrate found."

Summing Up

Investing in stocks for the long haul is a no brainer. So is minimizing debt.

Unfortunately, those no brainers fly in the face of 'conventional wisdom' and common practice.

Unemotional long term focused and regular savings which are used to buy-and-hold a diversified basket of dividend paying blue chip stocks will outperform all other styles of investing.

A smart buyer who purchases a blue chip stock today which is priced at $100 and pays a $3 annualized cash dividend will likely see the share price grow to ~$1,600 and the cash dividend yield $50 after 40 years, assuming that its average annual earnings grow at 7% compounded annually. 

That's a uniquely great feature of low cost buy-and-hold long term focused stock ownership.

That's my take.

Thanks. Bob.

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