The Great Recession had an enormous impact on our economy and while we’ve made strides since the downturn, there is one group that continues to feel the effects of this event. 56 percent of millennials report their investment decisions are strongly influenced by 2007-2008, according to a 2017 Legg Mason Global Investing Study. This was the first major pullback that this generation lived through, and it’s impacting their investment decisions today.
However, one recession shouldn’t drive future investment decisions. Investing, and starting early, is essential to securing one’s financial future. There are a few things millennials should focus on to keep a clear head when investing for the long term.
Understand the market is cyclical
To give some recent historical context, since 1980 the market has been negative at some point each year with the average intra-year drop for the last 37 years at 14.1 percent. However, in the last 37 years, 28 percent have been positive for the year. That’s 75 percent of the time. There are going to be wild swings in volatility when investing, but understand that there are going to be peaks and valleys. When the economy recedes, the stock market is going to go with it and that’s a natural part of the business cycle. But recessions or small corrections are generally a short amount of time—a few months to a year—while the rest of the time we are in expansionary periods.
Think about rate of return
Playing it safe will not reap the returns desired for a long-term millennial investor. With interest rates at historic lows, investments which carry more risk have been more profitable over the last nine years. In order to have a desired market-like return, investors must have some risk exposure which they are comfortable with. The key here is to have a broad diversification across many asset classes. Avoid the common mistake of having concentrated positions and investors can be off to a good start.
Start investing early
A good market entry is to invest in mutual funds or Exchange-Traded Funds (ETFs) that are broad based and professionally managed. Through a dollar-cost-averaging method, investors can invest incrementally and gain exposure by investing a fixed amount of money into the market on a regular schedule. You can set this up with a 401(k) or through automatic deductions from a bank account to a brokerage account.
Ultimately, millennial investors have a long-time horizon for investing. People who stayed in the market have recovered from the recession in 2008, so there’s plenty of time for a 20- or 30-something’s portfolio to recover from any corrections they see over the next few decades. When the market goes down, it can be tough to handle. You may experience losses at times, but you can’t “win” if you’re not in the game.
When millennials are ready to set themselves up for a successful financial future, it’s essential to invest and prepare for market fluctuations. If you have questions or would like help getting started, please contact a Univest financial advisor at 888-578-0070.
Investments offered by Girard Partners, a Univest Wealth Management Firm, are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including loss of principal amount invested.