Why Young Adults Fear Active Trading: How to Overcome Investing Doubts

In the past few months, I have started to think more seriously about my investment strategy. Most of my retirement plan right now has been 1-dimensional: INVEST A LOT! For many reasons, this is important. For those who know very little about investing, investing a lot early is the key to cushioning that retirement nest egg. Yet, I have come to realize that this is not enough.

Here’s a little bit more about my retirement strategy. I am currently using two different retirement vehicles (your employer’s 401k or 403b AND Roth Ira) to save for retirement. While it takes sacrifice to invest in both on a salary of someone just entering the work force, I have come to realize that it’s insufficient. I want to do everything I can to boost my investments while I’m young.

young adults investing

Through this new dedication to set up financial security, I have come to an important realization: I don’t know anything about active investing. That’s right – I’ll admit it. I know some stuff, but not hardly enough to feel comfortable picking individual stocks. All of my current investments are automatically diversified based on my age. For someone who enjoys directing his money and putting it to good use, I am delinquent in this area. I need to improve! I have done a lot of research on investments in the past couple of weeks and will be continue to do so. That’s when it hit me. I bet I’m not alone. Many young adults also struggle with knowing how, when, and where to invest their money. For this reason, I plan to write more on the in’s and out’s of investing. Not just basic stuff like INVEST A LOT NOW. This is important, but not everything.

One of the first things that I had to overcome when I decided to invest more money was my fear of losing my money. Many young adults also face similar fears. After working at their job (or jobs), it’s hard to risk losing that hard-earned money. While some doubt or fear may be healthy, fear can be debilitating. It can, and often does, prevent young adults from starting to invest. The only way to overcome these fears and actually start investing is to identify what’s holding you back. For this reason, I thought I would cover the common fears that young adults face when it comes to investing.

Reasons Young Adults Fear Investing (or active trading)

Unfamiliarity

One of the major reasons that young adults are afraid of investing is that it is unfamiliar. They have never done it before. You’re always afraid of that which you aren’t familiar. Investing is no exception. While some young adults have taken advantage of their employer’s 403b or 401k, that doesn’t mean that they have spent time researching the stock market. In fact, most people start with mutual funds or other diversified funds that have someone else managing them. While this may be great for people without any experience, it also means that young adults don’t have to learn. It’s hard to know where to start and there is always the growing fear that you will jump in too soon without knowing enough.

Poor Recent Performance of the Stock Market

Over the past decade, there have been two sizable drops (if not more). For young adults who have just graduated from college, this means that they have grown up being aware of the volatility of the market. Take it from someone who knows first hand. My wife got advice when she was a child to invest some of her savings in order to put her ahead of her middle-school peers. Unfortunately, this was just before the time that the stock market crashed. Yep, she lost most of her investment. Talk about demoralizing, right. It happened again in 09. While she is coming around to investing again and knows it’s a long-term tool to build wealth, it hasn’t been easy. Many young adults also face this same hesitancy.

Don’t Make Enough Money

Many young adults start out with low paying jobs. It’s often an unfortunate result of getting a job without adequate experience. The truth is that many young adults struggle when they are first starting out. Some move back in with their parents while paying off student loans and others continue their college diet of ramen noodles. When you are barely making ends meet, even the slightest chance of losing any extra money is enough to give you a heart-attack. Most people start investing when they have a surplus in their monthly cash flow, so it only makes sense that young adults would shy away for not making enough money.

Not Enough Time

Being a successful trader, selling and buying individual stocks, takes a lot of work. Many young adults are quite busy. Whether it’s because they are continuing their volunteer work from college, or working two jobs to get by. Many young investors don’t have enough time to closely monitor their portfolios. Can you imagine missing the latest news about a corporation going under and being late to the party? Take it from someone who knows what it means to stay busy. I am currently working full-time, going to grad school, and blogging at night. I know that I don’t stay up-to-date with the latest news and I would hate to miss some important news that would negatively affect my portfolio.

Overcoming Fears of Investing

Are you guilty of letting one of the above reasons from starting to invest? While it may seems like the cards are stacked against you as a young adult, it shouldn’t keep you from investing. In fact, there are many advantages that young adults have when it comes to investing, but one that is perhaps most important. The thing that should convince young adults to start investing today is TIME.

Time is important to consider for many reasons. It not only gives you the duration to grow your portfolio, (Remember the importance of compound interest and why time is an investor’s best friend?) but it also gives you a little bit of cushion. In other words, if the stock market drops in the next few years, you have enough time to recover your loss – and the stock market has always came back. People who are nearing their retirement age do not have this same luxury. That is why most people become more conservative as they approach retirement age. There is less time for them to recover any drastic loss.

If you are letting one of these reasons keeping you from investing while you are young, you are making a big mistake. Take time to evaluate how much you can invest and start doing research.

Did you let the risk of investing keep you from investing when you were young? 

17 Responses to Why Young Adults Fear Active Trading: How to Overcome Investing Doubts

  1. I think a lot of young people don’t invest because a 300-600 dollar loss in a quarter still seems like SO MUCH money. It can be hard to put that stuff up for a loss even if you will eventually recover it. I know my retirement account took an 800 dollar hit last quarter and I wanted to cry.

    • Corey says:

      Yeah, it can be hard to manage. I lost a lot of my first investment money in 2009 and thought about giving up completely, but it has rebounded since then. It’s an understandable reason to avoid investing, but it’s one of the few ways to beat inflation historically.

  2. It’s true that I still have a fair amount of time to recover from a loss in investing, but I don’t really have the money to recover from it. If I invest and it goes bust, that’s money gone forever.

  3. I think young investor should start with low fee index fund so they have a stable portfolio first. Then they can start active trading when they learn more about the stock market.
    It’s true that you have time to recover from losses, but it’s better to not have that loss. My Roth IRA is doing pretty badly from taking too much risk and never really recovered.

    • Corey says:

      That’s a great point Joe. I am actually planning on starting that way with my taxable account, after which I’ll be sure to write a post about it. :)

  4. I’m not interested in active trading because even the professionals can’t beat the index funds. I’m just going to keep in my no-load, low-expense-ratio index funds.

    • Corey says:

      That sounds like a great plan Emily, but I’m no expert. :)

      • Emily

        I understand your concern but I think if you actively pursued to further your education in the stock market you may find your returns are better than the “professionals.” I say this because you have a vested interest in your portfolios performance while mutual funds & index funds do not.

  5. Active trading is pretty much a fool’s game, unless you sit at a screen the whole time and have a specific specialty where you eventually just know more than the generalists out there.

    Investing, though, is an entirely different animal. Just accept up front that there will always be someone who does better than you. That takes the pressure of you of trying to make sure you squeeze the absolute maximum out of every investment. You won’t.

    But the good news is you don’t have to. If you just pick a few solid stocks, like 3M, P&G, IBM, and others like that, you will over a 20 or 30 period reap good returns. You can seriously turbocharge those returns if you are willing to invest just a little extra time to discover smaller companies that are doing exceptionally well. Two great resources are aaii.com and the Motley Fool.

    There are several thousand companies to choose from, and the majority of them are well run. Investing in solid companies has really paid off very well for my wife and I.

    It’s your money and it’s not going to grow by itself. So you have to decide what you like. If you’re a handyman type, then a rental property might be more up your alley. But if you want to invest in the stock market, it really pays if you take a little time to get to get familiar with it, and then just keep investing…

    • Corey says:

      Thanks for sharing part of your strategy to investing, William. The only problem that I have with news articles telling me which stocks to purchase is then it alters the potential return because many uneducated investors will go out and buy them to a point where they are over-valued.

    • William

      I completely agree. I have all of those companies on my watchlist. Once I can purchase them a great value I will happily add them to my portfolio!

  6. Investing in the largest most successful businesses is the best way for an individual to compound his or her money safely in the stock market. Corey you make a great point and I’m glad you said it. You are taking on a journey to educate yourself, in my opinion that’s the hardest and first step an individual needs to make. Stocks are pieces of businesses, so if you treat stock investing like a business you will out perform the majority of individuals in the stock market.

  7. Although it really sucked at the time, I am somewhat glad to have started investing around 2003-04 and make it through the crisis of 2008-2009. One of the biggest mistakes young people make is associating more risk with more reward, because all they ever see is the more reward side. I can assure you that after having seen my portfolio drop by 50%, I will never again approach risk with the same caviler that I did in the past. A 6 to 8% return with modest and reputable companies is much better than being foolish.

  8. Investing is just one step above paying off debts and saving for a rainy day — I’m just not there yet.

  9. My two pieces of advice for beginning investors:

    1) Tell yourself over and over again that you’re investing for the long term. Losing $800 in a quarter seems awful until you realize that you haven’t actually “lost” those $800 unless you cash out. You weren’t going to touch the money yet anyway, so just breathe and wait.

    2) Don’t invest in “the next big thing.” If you want to dabble in individual funds, go for the big reliable companies (I go by the Dividend Aristocrats). You’re not going to make a ton of money overnight, but that’s not the point of investing for the long term. I would only invest in a smaller, riskier company if I had done a TON of research on the company and the industry.

  10. I dont think it is fear as it is preoccupied by the idea of having fun with their money while young and then finally settling down later and realizing (and regretting) that they didnt invest early. At least that is what it was like for me and my hubby

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