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Millennials: Why Now is the Best Time to Start Investing

| January 09, 2019
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One of the biggest questions I was getting from people 10-12 months ago was, “Is now the time to get invested?”  If you remember, that was right about the time the S&P 500 (a gauge for the U.S. stock market) was at all-time highs.  Shortly thereafter, we had a February that was not very loving (Valentine’s joke), and a March that did not spring-shot (another joke, ok I’ll stop after that one) us forward.  Then the summer months came, and we finally felt like things were back on track.  The market did have a little more volatility during that time compared to last year (which is more normal), but we were right back headed towards the prior highs of the year.  Then, just as soon as the market giveth, the market taketh away, and we hit Fall and oh boy did stocks begin to fall (ok, I couldn’t resist).  We are now in December just off our lows of the year, and in fact, the S&P 500 that I mentioned earlier hit a new 52 week low as I write this.

So, what should you do?  Well, if you are a brand-new investor (millennial or Gen Y who has never dipped your toes into the stock market), now is a great time to begin your investing journey.  Now that doesn’t mean blindly picking stocks, ETFs and mutual funds, and just throwing your money in at random.  There needs to be some due diligence to make sure you are making smart decisions.  From a macro (big picture) perspective, there are a lot of advantages on your side, plus it will provide one of the greatest learning opportunities in your young lifetime.

For one, you have time on your side.  Could the market go down over the next year?  Sure.  You already saw what it has done this year.  Up big, down big, back up, and back down.  Weird, right?  Not really.  The market, over time, will be volatile (meaning move up and down).  Sometimes more volatile than others, however, that is what it is supposed to do.  Stock prices don’t just go up in a straight line, and if they do, well there are plenty of court cases on why that happens.  So, if you have time on your side, that means you are better positioned to weather those storms in the market (like we are seeing now) and participate the entire time as it is returning to new all-time highs, and higher highs in the future.  Think about this, there has NEVER been a 30-year time period where the S&P 500 was LOWER at the end of those 30 years from where it started.  *That includes the Great Depression, World Wars, other wars, tech bubble, Great Recession, all the points in time when the overwhelming majority of people thought the “world is ending.”

The other thing you will learn, and this is one of the (if not THE) most important things you need to learn as an investor, is DISCIPLINE.  You must have a strategy, a philosophy, a game plan, and have the discipline to stick with it in good times and bad times.  Just when you think everything is going against you and that your plan is broken, that’s when things begin to turn around and go your way.  The problem is, that is when most investors decide it’s time for a new plan, they then sell (often at lows) and wait to get back in until things turn around (selling low and buying high – not a profitable strategy).  At that point, you are back in the game too late – ask anyone who held cash through 2017 because they feared the outcome of the presidential election and just got back invested in 2018.  I can’t tell you how many people try and time the market and lose.  No one gets it right.  Some people can get close, but no one knows the exact top and the exact bottom, and if they try to tell you otherwise, run.

Another competitive advantage you can have as an investor is liquidity.  Meaning you have access to capital (money) when opportunities or emergencies arise over time.  Mark Cuban didn’t build multiple companies and didn’t take advantage of multiple opportunities over his lifetime because he socked a bunch of money in his (illiquid) 401k.  He had cash, savings, and other liquid assets that could be tapped into when he saw that opportunity arise.  Cash also helps from an emotional standpoint, which is a large reason an investor may get in trouble with their investments.  Having cash allows people to think more clearly about a decision and not feel forced to try and “catch up” by hitting a home run or taking on too much risk.  Warren Buffet said it best, “Cash is like oxygen when you have it, you don’t think about it.  When you don’t have it, it’s the ONLY thing you can think about.”

Lastly, when are the two best days of the year to buy things?  Black Friday and Cyber Monday, right?  When things go on sale!  Well... When the stock market goes down, why does everyone run and freak out and hide?  That stock you liked at $50 per share is now down 25%, and now you hate it??  You were about to (or already did) pay $50 for it and now it’s down at $37.50!  It went on sale!  I get it, though.  It is very difficult to see your money go down.  Who in their right mind wants to invest $100,000 and the next day have $95,000?!  No one enjoys that, however, that is why my first two points are so important to understand.  You have the time on your side to consider buying a strong company or basket/grouping of companies (I.e. ETF or mutual fund) to watch them come back and grow, plus no one is going to time the bottom perfectly and NEVER see their account balance drop. 

So, to wrap up, a few key things to be considering as you are beginning your investment journey:

  1. Do you have time on your side? How long can you go without needing this money?  2 years, 5 years, 20 years?
  2. Have a strategy and maintain discipline to that strategy. It may not always go your way in the short term, however, if it is a sound strategy, chances are it will pay off in the long term.
  3. Do you have liquidity to take advantage of opportunities when they arise? Having cash helps weather the storms of life and allows people to make better financial decisions over time.

Have questions?  Want to learn more about how to start investing and other ideas/myths to be aware of?  Email me at [email protected] and I am happy to get together to share more.  Thank you for reading! 

Joie de Vivre!

References: 

*https://www.businessinsider.com/30-year-sp-500-returns-impressive-2016-5

*https://awealthofcommonsense.com/2016/05/deconstructing-30-year-stock-market-returns/

S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts, and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security.

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