Too many people are not investing. It’s especially true for millennials.
The inertia of inactivity keeps us from investing. People gave sworn off the stick market since the 2008 recession. Millennials are scared to invest.
But, that’s just an excuse. You shouldn’t be scared. We all know that we should invest for retirement, pay off our debts, and save for our financial goals. Our inaction was an issue before the stock market and housing markets tanked it 2008.
Over 90% of millennials say that they distrust the stock market and that their lack of investing knowledge make them less confident about investing according to a Capital One Investing survey.
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State Street Bank also found that millennials are also holding a significant amount of their investment portfolios, over 40%, in cash. This is an alarming trend considering that we have seen historically low interest rates on savings accounts and money markets for over a decade. Young Americans are seeing their purchasing power erode by holding cash that they aren’t putting to work in their favor.
But, that’s not half of the story. When it comes down to it, we’re lazy. Not investing for our future is the path of least resistance. It’s easier to do nothing than to venture out from shore. We’re using the market correction and its turbulence simply as a scapegoat to ease our minds and sugarcoat our inactivity.
But, how do we get over that initial inertia of not investing in the stock market? It’s not easy. But, how do you get started? Here are a few ways that can help you get off the sideline and start investing again – or investing in the stock market for the first time.
Don’t Fight An Automatic Enrollment
Many employers now offer automatic enrollment for their new employees in their 401k retirement plan. You should take advantage of that benefit. Invest in your company’s 401k.
More and more employers are using an “opt out” 401k automatic enrollment. Meaning that employees must opt out of the program instead of signing up when investing in the stock market or other investments.
From your very first day of employment, your company invests a small percentage of your salary in an ultra-safe investment option such as money market funds or government treasuries.
But, it is on you, the employee, to change your investment choices from the automatic enrollment selection. A money market fund will not do much for you. In fact, it won’t even keep up with inflation.
You have to change what type of investment that you want. So, this is a great option. You’re half way there – your company already got you investing in the stock market. But, now you have to choose a better investment – maybe an index fund that mirrors the S&P 500 index.
Start Investing With A Small Amount
One way to overcome the inertia of not investing in the stock market and continuing to invest after you’ve started is to start slow. Invest a small amount.
Just getting your foot in the door can be all of the nudge you need to start investing for your retirement and your financial goals. Start by investing just 1%.
If you earn $60,000 per year or about $2,500 each paycheck, a 1% investment would only equal $25 per pay period or $50 per month.
That may not sound like a lot of money, but it adds up. $50 per month, $600 per year – It’s a start. Once again, it gets you started – your foot into the investing door so to speak. And, those figures are if you never add another dime to your monthly investments and if they do not earn in interest and your interest doesn’t earn compounding interest.
Increase Your Investing In The Stock Market Gradually
The secret comes with increasing your contributions. The average American earns a 3% annual pay praise. Many employees provide it in order to keep up with inflation. What are you doing with your annual pay raise?
What if you took that pay raise and simply increased your retirement investing by an additional 1%? It’s brand new money to you thanks to your pay raise. You haven’t factored it into your budget. You can easily save 1% and spend the other 2% without even batting an eye.
If you earned $60,000 and saved just 1% annually, or $600, earning an 8% annual rate of return, you would have over $121,000 in the bank after working and saving for 40 years thanks to the power of compounding interest. And, that’s if you never increased your 1% savings and never got a pay raise.
But, what if you made a small change? If you simply increased the percentage you saved by 1% each year for 20 years, you’d be able to amass over $1.7 million by the time you reached Social Security age and retired.
That’s still assuming that you never earned a pay raise during your 40 year career – highly unlikely. If you take the same scenario and simply changed that one variable to give you a 3% annual pay raise, you’d end up with a nest egg of over $2 million.
These figures are nothing to sneeze at when you look at them. They demonstrate that making small changes each year can add up over time, especially when you talk about the power of compounding interest.
Start with a small amount. Jump in to your employer’s 401k retirement plan. Increase your contributions with every pay raise you earn. You shouldn’t stay out of the markets because you’re scared. You have to fight inertia and get in there.
What keeps you from investing in the stock market? I’d love to hear your thoughts. Leave a note in the comment section below or send me an email.