April 25 (Lagos) - A majority of millennials are scared to invest in the stock market today, either it is the fear of a bad investment, or the money to invest is an obstacle, whereas for some it is just not knowing whom to trust to help them invest. Moreover the devaluation and recession did not make it easier.
Stocks really aren’t as unsafe or scary as one might think. When analyzing graphs, it’s true that if you focus on the short-term “noise”, you will get lost in a dizzying sea of madness. Prices go up, prices go down. The trick is to simply ignore the day-to-day fluctuations. When we step back and look at the full picture, we will see that the stock market performs extremely well over long periods of time.
In contrast to gold, when you buy a share of stock, you are actually buying ownership into a living, breathing corporation. Over time, these companies will release more products, gain more customers, increase earnings, acquire other companies, etc, and grow.
As an invested shareholder, you no doubt are entitled to all the perks and benefits of this success. Many companies are also willing to share the profits with you, and reward shareholders in the form of dividend payouts. This is the critical component really needed to supercharge returns.
So, not only does the share price increase in value, but the dividends earned can also be reinvested each quarter, or year, to buy more shares. By employing this strategy, a shareholder will quickly accumulate a large number of shares over the years.
The story of Anne Scheiber is a popular tale of a woman who worked at the IRS until retirement, invested $5000 into stocks in 1944, and upon her death at the age of 101 saw her assets balloon to upwards of $22 million.
How’s that for a return on investment?
Since the stock market is a vote of confidence, a crash can devastate economic growth. Lower stock prices mean less wealth for businesses, pension funds and individual investors. Companies can't get as much funding for expansion.
When retirement fund values fall, it reduces consumer spending. If stock prices stay depressed long enough, new businesses can't get funds to grow. Companies that had invested their cash in stocks won't have enough to pay employees, or fund pension plans.
Older workers will find they don't have enough money to retire.
But investing in the stock market is the best way to beat inflation over time. It makes sense to own more stocks, but if market drops still make you nervous, remember this: It may be painful for a time, but if the stock market behaves as it has over long periods, you should be able to ride it out. This is why stocks should be owned for the long term.
It has taken many years, even multiple decades, to recover from the worst historical declines in the stock market. But, overall, stocks still offer the most growth potential, by far—as long as you can stay the course over the long term.
Thinking of it this way may help, too: Losses are just on paper unless you sell your investments. If you are tempted to sell investments when they are down, remind yourself that you are investing for a time far in the future.
So why lock in losses when you have time to ride the market back up? Also, if you save regularly and continue to invest during down markets (and the market demonstrates the kind of long-term growth that it has historically), you will be adding to your savings during those market dips, or "buying low." When the market recovers, you may be even better positioned for growth.
Also, there are ways to mitigate the risk - through diversification.Investors should look at investing offers that provide a diversified portfolio with a balance based on their overall investing goals. In general, a portfolio that contains a variety of ETFs, bonds and cash is a great place to start with.
Stocks also affect the country's economy in three critical ways. Firstly, they allow individual investors to own part of a successful company. Without stocks, only large private equity investors could profit from Nigeria’s free market economy.
Secondly, stocks provide the capital for companies to grow large enough to gain competitive advantage through economies of scale. Owners use personal credit cards, bank loans and eventually even float their own bonds . But that only takes a company so far. To sell stocks, they take the company public through an Initial Public Offering This raises a lot of cash and signals that a company is successful enough to afford the IPO process. The only drawback is that the founders no longer own the company. The stockholders do. But they can retain a controlling interest in the company if they own at least 51 percent of the shares.
Thirdly, stocks give an assessment of how valuable investors think the company is. When stock prices rise, it means investors think earnings will improve. Falling stock prices mean investors have lost confidence in the company's ability to increase its profit margins.
No matter your age—and how far away retirement is—you want to enjoy your retirement years and do the things you want without having to worry about money. To help you achieve that, the historical odds favor a diversified mix of investments with a significant exposure to stocks. So, beware of investing too conservatively.
Get used to riding the ups and downs of the market. For those investing for the long term and saving regularly, a downturn can even help boost savings—because the same amount of money can buy more shares of a stock, stock mutual fund, or ETF at lower prices.To begin with, do you homework, and then go slow.
Start with a savings account that will give you a competitive rate of return and pay yourself first by putting whatever you can, even if it's just a small amount, from each paycheck into that savings account. History has proven time and again that the key to achieving financial security is to start saving and investing early. What people need most is to face the 'Someday Scaries' head on and get started, taking one small step at a time.