I came across what I see as a slightly disturbing article this past week. The article was titled, The new young investor: Shunning stocks. In short the piece discusses how because of the significant economic downturn we’ve experienced in the U.S. over the past few years young investors are not willing to take on more risky investments and thus are focusing their portfolio on safer investments, such as CDs and Treasuries.
A statistic is quoted in the article that states of those under 35, only 22% stated they are willing to take on a substantial level of risk. I do not believe the ‘substantial level of risk’ statement is qualified, but with the emphasis on CDs and savings in the article I’m going to go ahead and assume it’s referencing speculative stocks outside of the Dow 30. Maybe more like what you’d find on the AMEX exchange.
What worries me about this trend, if it is prolonged:
- Opportunity is being lost.
- The younger you are the longer you have until retirement or some other major point in your life. Therefore, the longer you have to recover from any loss you incur.
- The knowledge and experience you gain by being an investor is not being cultivated.
- The longer you stay out of the market the more likely you will view the market as a mysterious force and thus become overly suspicious of the entire system (less willing to invest in stocks/funds in the future).
- You want to get into the market after it has crashed. I fear that these investors will wait until we have huge run-up in market prices before investing in stocks/funds. This will set them up for minimal gains and probably result in significant losses.
I actually sympathize quite well with investors in such a predicament. In 1999 I invested in 3 companies that appreciated in value greatly as 2000 came. In a matter of a year or two all 3 companies had gone bankrupt. I stayed away from stocks for nearly 3 years. What I should have done though was take the additional savings I had in 2002 and start investing again. The market was down and it was a great time to buy certain industries.
Going against your senses is not fun. When you feel pain, it’s natural for you to want to stay away from whatever the cause of that pain was. I hope that in the matter of 1 or 2 years we see young investor sentiment change with regards to stocks and funds.