Millennials and Stock Trading – Is Now a Good Time to Start Investing?

Millennials who are interested in investing face a unique and often conflicting situation. On the one hand, the markets have responded to the COVID-19 pandemic with volatility. Volatility always makes investors nervous. It also makes them salivate. This is because volatility can mean an opportunity for those who are focused on making long-term investments and who have long-term investment goals.

Millennials may feel encouraged when they look at past trends that show that over time markets will recover. Still, no one can be certain that there won’t be further falls. Should millennials investment or hold off on investing until the market stabilizes? The answer depends on what they want from their investments.

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Millennials Who Invest Will Need Nerves of Steel

Most millennials get their first taste of investing using a stock trading platform or when investments are made for them by their employer. Those looking to strike out on their own will need to have the foresight and fortitude to look beyond the current volatility and see predicted stability.

The price of investments is determined by supply and demand. Looking at the current state of the market the temptation may be for millennials to cash in before the market suffers further falls. This is the natural inclination. However, history shows that reacting in this way only makes losses worse.

Millennial investors who can swim upstream against the tide may enjoy selloffs provoked by others who lose their nerve as the market takes a downturn. As the market falls, savvy millennials may buy shares in businesses for a less expensive valuation. The sooner they invest, the more time they will have to see their investments produce long-term results.

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Four Keys That May Help Millennials Invest Successfully

Key Number One: Time in the Market

Gamblers try to time the market, but investors value time in the market. This means that investors leave their money invested for years. They realize that the longer they invest, the greater chance they have for making a profit. Millennials, because of their youth, have nothing but time on their side. There are powerful reasons for millennials not to hold off on making an investment decision.

It’s important to know when the market has reached its bottom. There are several indicators that will show this. Sure, there may be short-term losses involved. However, if you try to time the market and try to cash in when you feel that you will make the most money, you risk missing out on some of the greatest gains the market makes.

Key Number Two: Manage Your Risk

Investments produce returns based on the way the market moves. However, millennials can mitigate some volatility by spreading their money across various assets using different funds. If they invest around the globe, they protect themselves from economic upheavals that might affect one country but not another.

Key Number Three: Act

The economic upheaval being caused by the pandemic and social unrest around the world can feel scary for newer investors. However, millennials who do not immediately need their extra cash and who have already set aside money for the future realize that investing long-term can give them financial focus. They realize that while their immediate financial future may appear to fluctuate, there is stability over the long haul.

Key Number Four: Be Safe

As the number of active traders increases so do instances of security breaches and hacking. This is compounded by the lacking security infrastructure of many banks around the world.

Gary Stevens from Hosting Canada advises millennials to protect their investments by using a trading platform that values security above all:

“In the past decade we all witnessed a noticeable growth of online stock trading platforms. There are a lot of factors to consider when choosing an online trading platform such as features, fees, account options, investment choices, and so on. But security always comes first.” (See Gary’s research here)

Do Not Invest Based on What If’s

There are some millennials who are reluctant to invest in stocks or other investment vehicles because they worry that the market has yet to bottom out. What if the market gets lower and buying now looks foolish?

The answer is that nobody knows what the future will bring, so it is counterproductive to base investing decisions on the unknown. Tomorrow there could be news of a second wave of COVID-19 and the market may crash. Or there could be an announcement of a vaccine and the market could reach highs it has never seen before.

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Many financial professionals encourage millennials to not fall into the trap of buying beaten-down stocks. The idea is not to go for the stocks that seem like a pandemic bargain. Instead, look at companies that have a sound management structure and that have created an environment ripe for long-term growth.

Remember, markets in the short term react irrationally. One would expect that most companies will have terrible earning reports over the next quarter. Logic would dictate that the share prices for these companies will go down. But, as we have seen, the markets could react differently. Conversely, a company may report higher than expected earnings and still see its share price drop.

There is no way to predict short-term reactions with 100 percent certainty. A strong business will see an increase in their share price. It might take some time, but having patience usually pays.

When Would Be a Bad Time for Millennials to Invest?

Most financial planners would argue that there is no bad time to invest. The one exception is if a person is investing more money than they can afford to lose. Millennials who do not have a solid stash of emergency money saved away, besides the money that they want to invest, may not want to invest in the stock market right now.

As we discussed, once a person invests, the goal is to leave it there for as long as you can. For example, a millennial saving for retirement would not break into their savings until they are ready to retire. Millennials who have no emergency fund may find themselves forced to withdraw money from their investments prematurely. This may mean that they face unexpected fees.

The priority for millennials should be to have enough money set aside in an emergency fund so that they can live for between three and six months. Considering the COVID-19 pandemic, it may be wise to save enough money for a year or more. Millennials who lose their employment right now have no idea how long the pandemic will last, and there’s no telling when they will find another job.

Until a person has enough money stored away and their emergency fund set up, a suitable option may be to put their money in a high-yield savings account. This allows them to withdraw cash when they need it without worrying about paying a penalty. Investing should not be postponed forever. It is one of the best things that millennials can do to build a solid future.

Interesting related article: “What is the Millennial Generation?