I’m a millennial. Which means I’m currently roughly between the ages of 18 – 36.
In fact, I’m 23. So I’m actually towards the younger end, which is interesting in terms of investing.
See millennials were born roughly between 1980 and 2000. So during the 2008 stock market crash, our generation was between the ages of 8 – 28.
Which granted is a pretty big gap. But it’s also important to remember the dot com crash between 2000 – 2002.
During this period, millennials were between the ages of 4 – 22.
Why does all of this matter?
Well, it means that nearly every millennial vividly remembers a stock market crash, but it was likely before they had any real money invested. But we still remember.
We remember our parents losing jobs and friends losing houses. We remember our grandparents extending retirement because they lost so much money in the stock market. And many of us remember graduating during a down economy and finding it increasingly difficult to get a job.
Essentially, we’ve been scarred by at least one, and for some of us, two recent stock market crashes. We saw how the market directly affected the lives of so many closest to us.
And it’s made us nervous.
In fact, a study conducted in 2014 by UBS found that millennials are much more conservative and nervous about investing in stocks than previous generations. Specifically, millennials hold over 54% of their investment portfolio in cash equivalents like CDs and Money Market accounts.
The bottom line is that the recent past has kept the majority of us from investing because we’re so scared to lose it.
But this isn’t going to help us.
Not investing now, while we’re young and have so much ahead of us, could be a bigger disaster than losing money in a crash. Most of us don’t make enough or save enough to live just off cash savings. It’s extremely important for us to invest. We can’t just sit on the sidelines.
But I do understand. I’m a millennial too. I’m nervous too. But there are good reasons not to be.
And I want to share 3 of those reasons with you.
1. This Isn’t The First Time
The Housing Crash of 2008.
Black Monday of 1987.
The Great Depression of 1929.
Earthquake Panic of 1907.
Black Friday of 1869.
Railroad Panic of 1857.
There have been many stock market crashes during our Nations history. 2008 wasn’t the first, and it surely won’t be last.
Which means we aren’t the first generation to be entering the workforce just after a major crash. While this may not be comforting, it’s important to remember. We’re not alone in this and we aren’t unique.
We aren’t facing something that no one has ever faced before. People before us have overcome this same exact trial, and we can too. But the first step is to realize that we can.
We should take comfort in the fact that people have plodded this ground before us. It’s just like the first time you rode a roller coaster at the theme park. You were with your parents or friends, and you were nervous. But other people have done it before. You were even able to see other people riding it first.
By taking comfort in the fact that others have done it, you’re able to overcome your fear and try it too.
It’s the same way with the stock market.
This isn’t the first time. Others have gone before us. We just need to strap in, grab the handlebars, and hang on for the ride.
2. Stocks Always Go Up Over The Long Term
Many of us are nervous about the stock market crashing again.
And in all honesty, it will. It’s very likely you will see couple of more crashes during your lifetime.
But let’s step back for a second and remember what stocks really are.
Stocks are just words that represent ownership in a company. So as long as companies keep making more money over time, then stocks will go up. In other words, as long as U.S. companies continue to grow, the stock market will continue to grow.
Yes we will see more crashes. And yes companies will lose money and go bankrupt.
But by and large, the majority of companies will increase. And the only way you’re going to lose all of your money is if the entire U.S. crumbles as a nation. And well… if that happens, you’re going to have a lot more to worry about than your 401K balance.
Remember, it only took a couple of years for the stock market to bounce back from 2008. As long as you didn’t sell your stocks, you didn’t lose any money.
Sure, you have to wait a few years, but that’s not a big deal because we’re talking about retirement money here.
You’re a millennial.
Which means you’ve got years before you need to access that money. Even if the market crashes, as long as you can tough it out, you’ll gain it all back.
If you don’t believe me, just look at this chart showing the S&P 500 returns from 1927 to 2016.
Notice a trend?
Over the long term (30 – 40 years), the stock market always goes up.
Let’s look at it another way.
From 1927 to 2015, the S&P 500 has an annual growth rate (CAGR) of 6.87%. (Check out this calculator here, to try for yourself).
For arguments sake, let’s imagine you invest $500 per month for the next 30 years and receive 6.5% annually.
At the end of 30 years, you would have $553,089.04
Now let’s compare that to a CD at a bank yielding only 1.5% annually. After 30 years of investing $400 per month, you would only have $227,148.61
That’s a $325,940.43 difference!
The difference is literally more than what you would have saved using the CD alone.
I say all of this for one reason.
Yes, investing in stocks does inherently carry some risk.
Yes, it won’t be all sunshine and rainbows.
But it’s not that you can’t afford to take the risk. You can’t afford to not take the risk.
By not investing, you’re saying that you’re going to out-save what you could have made investing. That you will make up for retirement money through saving instead. And after looking at the numbers, that just doesn’t make sense.
3. Contrary To Feelings, You Should Want A Crash
I know this sounds weird.
But hear me out.
If we believe that stocks always go up over the long term.
And we’re only in our 20s and 30s.
And we don’t expect to reitre for another 20 – 40 years.
We should want a stock market crash!
Because it means that everything is on sale!
Look, now is the time for us to take chances. Now is the time for us to take risks. Why? Because we’ve got time to recover. Now, I’m not saying you should go out tomorrow and dump every dime you’ve got into some terrible penny stock. No, you should still be investing in low-cost, broadly diversified index funds.
But now is the time, if ever, to invest.
If the stock market tanks, that’s great for us! That’s when we need to jump in and buy everything up.
Remember, this is a long term game and we’re playing for many many years from now. That’s why a stock market crash is in your favor.
So What Are You Waiting For?
Now isn’t the time to stay nervous and scared. Now is the time to start investing for your future.
You can figure out the rest as you go. But the longer you wait, the more you’ll miss out, and the harder it will be to get in later on.
You’re reinforcing bad habits now by not investing. It’s time to break the habit and get in there.