Analysts in the financial industry have been looking at a common trend for several years now, and that’s the general risk aversion that seems to be seen on the part of Millennials. For decades, economic trends and services were shaped by the needs and direction of Baby Boomers, but now it’s Millennials that are determining the direction of many things in the world, including the economy.
Despite the cautiousness on the part of Millennials to invest, particularly in the stock market, it’s one of the best ways to build wealth over time, and it’s been a relatively successful strategy for most Boomers, particularly if they weathered the Great Recession and stayed in, despite the tumultuous environment.
So the question becomes, how can Millennials overcome their understandable level of risk aversion, and give themselves the opportunities that come with investing, particularly in more high-risk areas?
Education and Knowledge
First and foremost, a good first step for any Millennial is to learn as much as they can about the stock market. This can mean daily research on the trends to start with. Sites like YAHOO! Finance can work well in terms of bringing together a lot of information in one place, although many people are looking for other options since YAHOO! has undergone some revamps that have left a lot of people feeling like the site is missing some of its best former features.
Regardless, making it part of a daily habit to see what’s going on in markets and the overall economy is important to help Millennials create an investment strategy that’s informed, balanced and well-guided.
Compare Long-Term Savings Versus Investment Returns
For Millennials, saving a lot of money can seem like a safe bet because they’re tucking all of their money away in a nest egg where it can’t go anywhere. Unfortunately, while it may seem that way, it’s not ideal.
Saving money, particularly with interest rates remaining extremely low, is actually going to lose Millennials money. Inflation will leave them with less and less purchasing power throughout the years, so it’s important for any risk-averse investor to do a comparison and look at how much inflation will eat away at the value of their money, versus the potential returns they can make with riskier investment strategies.
Combine Short and Long-Term Investments
There are two different primary outlooks you can take as an investor. The first involves a long-term horizon. This is an ideal way for many Millennials to invest the majority of their money, and they’ll likely pick somewhat safer bets such as mutual funds and ETFs.
At the same time, Millennials also want to have some level of risk in their portfolio or alternative investments that can bring them more potential in the short-term for greater returns. The good thing for Millennials is that if they do have some risk as part of their portfolio, they have a lot longer to make up for losses they might experience.
The ideal thing for Millennials to do if they’re scared of risk is to diversify their portfolio across primarily the safer options. They can then gradually enter into the more risky areas of investing, with a small sum of money that they can afford to lose. Once anyone who’s afraid of risk jumps into new investment opportunities, it tends to become a lot less intimidating.
As a final note, for Millennials that are extremely cautious, robo-investing might offer a good opportunity. With robo-investing, Millennials who are terrified of losing it all have an easier way to set it and forget it with their investment strategy, without having to check it every day and potentially become overwhelmed by signs of volatility.