Investors who stuck with their investment strategy throughout the lowest months of the 2008-09 market downturn realized an average account-balance increase of 50% through June 30, 2011, according to a new study by Fidelity Investments. Investors who moved to cash during the downturn saw only a 2% increase over this same period.
Write down your goal for each investment, as well as your investment philosophy and strategy, and be sure to review those notes before making any changes.
Invest in equities for long-term growth
If they pay attention to what products and services their peers are buying, Gen Y investors could pick up some investment ideas. There are some great buys out there -- companies that are doing well in today's economy or poised to do well in a recovery but can be purchased today at rock-bottom prices. A self-directed account in a 401k is a great place to accumulate shares in individual stocks or mutual funds from the menu of funds provided by an employer.
Remember that Gen Y has a LOT of peers
Gen Y is a huge demographic -- larger than the baby boomers, three times the size of Gen X -- and makes up roughly 26% of the population. When the economy gets some positive traction, they will buy even more products. As they mature, their needs and their buying habits will change.
The purchasing habits of 30- to 40-year-olds change as they settle down and have families. They'll need to furnish their homes once the old hand-me-down couch from college and the IKEA furniture don't cut it anymore. They will buy minivans or station wagons, diapers and bikes with training wheels. They will be a force to reckon with and will provide an investment opportunity for the savvy investor, just as the baby boomers helped fuel the growth of the stock market in the '90s.
Use the business cycle to your advantage
Embrace the bear. Gen Y investors are basing their investment strategy on the assumption that the market will always be down, which is obviously not the case. We just don't know when it will turn around. Economists are trying to predict when that will be, and they often contradict each other, further confusing the rest of us. If you have a very long time frame, as Gen Y does, you can use the current bear market to your advantage.
I remember talking with a young investor who called our financial help line concerned about a negative account balance. I suggested another way of looking at the statement. The account balance is meaningless when you have 30 years before you plan to sell. Instead of opening your statement and immediately looking at the account balance, look at the number of shares you are buying. Notice that when the market drops, you buy more shares.
When your goal is accumulating as many shares as possible, volatility becomes your friend. Investors with a long-term time frame who are investing regularly should be glad to see how many more shares they bought on the cheap. They can then hold on to them for sale after they retire.
Gen Y employees didn't have much of a chance to learn how to invest before they were thrown into the fire, and they have been reacting to it ever since. The good news is that it isn't too late, since time is on their side. The bad news is that they may not realize they are in the wrong investments until it is too late, and their ultraconservative allocation may not give them the long-term growth they need.
VIDEO ON MSN MONEY
Gen Y is .. three time the size of Gen X
It sounds like someone is trying to con Gen Y, like they did to Gen X youngsters, into buying some snake oil. Take care of the basics (housing, food, education and medical bills) and don't put to much strain on your brain about buying those down hill ski boots when you get to my age.
Trust me .. getting old isn't about having fun past retirement age.
Unfortunately I could not disagree more with this writer's advice. Yes they have a long time to go. But to invest for the long term because that is what they say to do is sticking your head in the sand. The stock market since 2000 is never going to be like it was the 40 years preceding it. It is controlled by big millisecond traders. Everyone's goal should be to preserve capital and avoid losses. There is not going to be any long steady growth ever in the stock market again. We are a global economy and that makes things to volatile. If I keep pace with inflation, then I am happy. Forget abot the historic 8-10 % average return. Those days are gone. And you are a fool if you think otherwise.
Yes you need to be in the market, but not to the same % all these advisors are still trying to push. Even they have not faced the reality that the good ole days are gone.
I have been sticking through it with my 401k account, which my company matches at 50 cents to the dollar. Over the last two years I have lost more money than I put into it. In an effort I have decided to wait and see what my January statement has to say, have lost over 25% of my account balance every quarter for the last 7 quarters. If you truly think that 401k’s are the best investment for you money, think about this if I had invested the same money in a C.D. or savings account I would have seen a 27% better return on my investments. Clearly the people managing my money are clueless at best not to mention the 10% of my account balance they take every quarter in fee’s before any other losses are figured in. I would give the advice that you are truly better off to invest your money yourself, take a save route if do not understand the stock market at least the money you invest will still not disappear in a savings account. And NO money doesn’t magically reappear in you 401k later once it is gone, it is gone forever, you only make money on what is left when the market picks up.
My wife and I put 10% in our 401k's and they aren't as doom and gloom as everyone is making them out to be. Over the past 6 years we have been investing (I'm currently 29) and we are still in the positive. We have adjusted our investment strategy over time, but we haven't stopped investing. Many people who don't continue to contribute to a retirement plan will just spend the money as opposed to putting it in savings or paying down debt. Several people have had bad experiences and skews their thoughts on all financial advisors. As a part of some companies retirement plans, free financial advice is included with a qualified advisor. Utilize that service if you don't know what you are doing, you will be happier in the long run.
By the way, none of these articles on MSN are supposed to give you a golden pill to fix everything. Read the article and then question what they are saying. Not every bit of advice is perfect for everyone.
We Need a New Product
What might this new product look like? Let’s take a look at this issue from the participant’s perspective.
Most people are annoyed by the ridiculously convoluted rules and regulations surrounding retirement plans; it’s absolutely comical. Start by getting rid of all that.
For financial professionals, wild swings in stock values are accepted as normal. A 401(k) being reduced by 40% during a given year is unfortunate, but to be expected. And if stocks underperform bonds for 10 years or longer, don’t worry. In another 10 or 20 years the returns will swing back around in favor of stocks. Therefore, in the financial pro’s mind it makes perfectly good sense for the 401(k) plan to continue offering 18 equity funds and 2 fixed funds. To the average guy on the street, this wild-eyed Jim Cramer way of thinking easily meets the definition of insanity. In other words, the financial sector needs to tone it down with all their complicated, high risk products; they’re scaring people. If you are offering a wild ride on a rollercoaster, you should expect a large percentage of the population to decline your offer.
The guy next door does realize that preparing for the future is important. But it concerns him greatly when some know-it-all in a dark suit tells him that the sophisticated way to prepare for the future is to use the most unpredictable asset class on the planet (equities). A great many “normal” people out there now see that as a reckless approach.
Investing in stocks as a way of staying ahead of inflation has certainly been a useful marketing ploy in the past. But even the casual observer can look back over this past decade and have serious doubts about that tired old “inflation fighter” theory.
And financial pros can stop rambling on about asset allocation and efficient frontiers. The guy next door knows that his tax dollars have just recently been used to bail out many of Wall Street’s best and brightest. He’s no longer so easily impressed by their binder full of charts and graphs.
Keep it simple. Show the participant how socking away a certain amount each pay period will result in a specified level of retirement income. A great many people out there want a much higher level of predictability than what they are currently being offered in a 401(k). The old “step right up folks, place your bets and take your chances” approach to preparing for the future is not what most of the rank and file are looking for. Can you really blame them?
In addition to predictability, they are also looking for accountability. Stock mutual funds don’t offer either of those things. So when you attempt to look at this issue from the participants’ perspective, it really should not be surprising that 401(k)s are unpopular.
The fact is, the DC industry has made no attempt to design their plans based on their middle class clients’ wants and needs. They simply design them based on their own business model. As is always the case, the financial "services" industry has placed their interests ahead of their clients'. They have never been introduced to the term fiduciary.
Unfortunately, there are those who have ethical problems with the DC industry as well. They continue to push the 401(k) plan, despite the fact that it has a 75% failure rate amongst its participants (people are reaching retirement age with balances that are far too small). This may be one of the least effective products ever sold to the American public. It has been stunningly defective.
The financial industry should be required to offer a retirement plan that is specifically designed to have a 75% success rate. If they will finally do that, participation rates will no longer be a problem.
My new goal is to be debt free (no mortgage or anything), basically telling these Wall Street crooks to shove it. The Wall Street crooks have stealing down to a science.
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