The younger generation has been burned in the world of investing after a tumultuous few years of high volatility. A shift in investing sentiments shows that a higher percentage of investors are starting to invest conservatively in the markets and exchange traded funds (ETFs).
According to the Investment Company Institute, only 22% of investors under 35 are willing to take on more high risk in the markets now, writes Hibah Yousuf for Yahoo! Finance.
Christopher Geczy, adjunct associate professor of finance at University of Pennsylvania’s Wharton School, sees that the young working class have “witnessed a decline in the wealth of their families and seen their parents delay retirement or even return to the workforce,” which has negatively affected young investors’ opinions on high-risk investing. [4 Steps to Becoming an ETF Investor.]
In a Merrill Lynch survey of 1,000 affluent Americans, 56% of young investors are now more conservative than they were a year ago and the number is the highest percentage in all reported age groups. Vanguard Chief Executive Bill McNabb remarks that “If you’re in your 30s and have been saving for the past decade, you’ve seen the stock market return essentially 0%.” [ETF Investing Advice for the Young.]
However, experts caution that the younger generation should be parking some of their wealth into stocks since the markets will generate more returns in the long run, which is especially beneficial since this generation is expected to live longer with the advent of new medical breakthroughs.
If you’re gun-shy about the markets, here are a few ways to get started:
- Who Are You? That sounds existential, but it really means that you need to decide what kind of investor you are. Are you more of a long-term investor, content to buy-and-hold? Buy-and-hold investors believe that trying to pick the right stocks at the right time repeatedly is a lost cause that results in lots of trading, lost opportunities and mistakes. On the other side, there is trading, which means you’ll need to be a little more actively involved in your portfolio and take the time to monitor it closely. [How to Navigate a Trendless Market.]
- Choose Your Vehicle. Most people use either mutual funds or ETFs. While dollar-cost averaging previously worked best with mutual funds, brokerages are slashing commissions on ETFs (sometimes they’re even free) to make them useful for this, too. ETFs are also far more flexible, more transparent and, on average, cheaper than most mutual funds.
- Choose Your Investment Company. If you’re interested in trading stocks or ETFs, you need a brokerage firm. There are three main categories of brokerages, deep discounters, discount firms and premium firms. Vanguard, Fidelity, Schwab, E*Trade, Scottrade are among the many options that offer competitive prices. Research your choices to make the right one for you. [Where You Can Get Cheap ETF Trades.]
- Have a Simple Strategy. The one we follow is the 200-day moving average. If a position is below the 200-day average, it’s a signal to be out. If a position is above it, it’s time to be in. Of course, there are finer details that help to make decisions. [How to Follow the Trends.] Trend following helps you avoid performance chasing and emotional pitfalls.
For more information on investing, visit our ETF 101 category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.