Breakout

Millennials and investing: How to avoid the pitfalls

Breakout

If you’re invested in this market, you may feel like 2014 has been one long ride on a Six Flags roller coaster. Although the S&P 500 (^GSPC) is flat for the year, it’s been one bumpy ride getting here.

Over the past five years, however, investors have had very little to complain about. A steady, upward climbing market with little volatility had 401Ks and IRA accounts humming nicely. But one group of investors missed out on the action: young investors, or millennials.

After 5 years of steady returns, the return of volatility is now likely to dissuade new investors from buying in. Nick Colas of ConvergEX thinks that would be a mistake.

“This is year is a lot more normal, it’s a lot more like what should be expected,” he says in the attached video. “We get volatility, we get pullbacks closer to 5%, we’ll still be OK for the year, but the volatility will be much higher than last year.”

Colas says the same problems, or fears, affect everyone from mom and pop, to Wall Street whales, and new college grads looking to buy an ETF.

“Institutional investors have many of the same problems as retail investors, and investors new to the market...The message is the same, understand that volatility is going to go up, it’s perfectly normal, we’ve actually had too low a level of volatility because the Fed’s been too involved in pumping liquidity and pushing capital into markets, and we’re going to see a more normal market.”

Volatility returning isn’t a bad thing in Colas’s view, nor does it mean a redux of 2008 or early 2009, just that we’ll see more volatility than we’ve had.

With that in mind, Colas as two important tips for millennials, or anyone looking to enter the market:

  1. Dedicating a little bit of money every paycheck, every month into the market so you even out the volatility by buying more when the volatility is low, and less when it’s high.
  2. New investots have to stick with the plan all the way through the cycle, and not “bailing out” at the bottom even though they might be afraid when volatility strikes

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