A big chunk of younger investors are exiting the stock market or moving their long-term retirement money to supposedly “safe” investments, according to a new survey from Charles Schwab.
It’s no surprise they’re fearful of world economic collapse and possibly watching the money they’ve worked so hard to save going down the tubes. But getting out of the market is a big mistake!
The Schwab survey finds one in three younger investors aged 18 to 34 is heading for the exits. By comparison, only one in 10 of those investors who are already in retirement are doing the same. That’s because the latter group has been through the ups and downs and knows things are cyclical.
If you are younger — I know this is weird — but you actually benefit long term from financial turmoil today, especially if you are on a periodic investment plan.
By doing what’s called dollar cost averaging, where you put in a set amount of money each month through a retirement plan, you’re limiting your risk. When the stock market is tanking, your money buys more shares on discount, and in months that the market is climbing, your money buys a smaller number of shares when they’re probably overpriced.
So that’s my advice, which I recommend to any young person who will listen…unless, of course, you believe we’re going back to living in caves and we’ll never have economic growth again. If that’s the case, don’t listen to me!
But if you believe things go through cycles and eventually will recover, and that wealth flows to owners in capitalism, you want to keep putting your money in the stock market in a widely diversified portfolio.
Editor’s note: This segment originally aired June 11, 2012.