It’s a sad fact, but millennials are the poorest generation since WWII. Saddled with student debt and exorbitant rent expenses, most millennials haven’t been able to build meaningful personal wealth. A major part of the problem is millennials aren’t investing. More than 50% of millennials don’t have a single investment. The reason investing is important: Stocks create the opportunity for passive income.
- What does that mean? Owning a stock is the same thing as owning a business. Except in the stock market, you’ll own a very small piece of the business and won’t be involved with the day-to-day operations. Sleep in, go on vacation, it doesn’t matter – the business will still run.
- Diversification is key. This is the golden rule of investing for a reason. You have worked hard to save your money, so it’s important that you don’t put all your eggs in one basket. For virtually all investors, but particularly ones new to the stock market, a low-cost index fund that tracks the performance of the entire market is a great first investment.
- Don’t try to time the market. This can be tempting. You might sense the market is headed for a dive and sell. The reality is, there are hundreds of thousands of professional investors who are trying to do the same thing. And the vast majority of them fail. If you try to time the market, you run the risk of missing real gains.
- Time is your friend. Stocks go up and down. But over a long-enough time horizon, stocks tend to go up. There hasn’t been a single ten-year period where the S&P 500, a major stock index, has gone down. As long as you are diversified, a long-term hold strategy is very likely to serve you well.
- Invest in what you know. If you do choose to invest in individual stocks, it’s very important to invest in companies you understand. Don’t go buy a stock because you read a headline. Understand the business and be able to articulate why you think it’s a good investment.