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Young investors running scared

By Judy Martel · Bankrate.com
Friday, August 19, 2011
Posted: 4 pm ET

Call them "recession babies."  

The effects of this month's dramatic downturn in the stock market on the heels of the recession just three years ago is instilling a fear of risk in the very investors who have the most time to benefit from long-term stock market investments. The last generation to exhibit this level of distaste for the market was the one that emerged from the Depression, sometimes referred to as Depression babies.

Investors yanked $23.5 billion out of equity funds the second week of August, the most since October 2008, according to Investment Company Institute. A survey by global money manager MFS concludes that fear about the market is causing investors of all ages to pull out of stocks in favor of cash.

But those between the ages of 18 and 30 are leading the stampede, squirreling 30 percent of their assets in relatively safe investments like Treasuries and cash, compared with 26 percent for investors overall, says MFS.

Fear isn't the only factor at work: More members of this generation report losing their jobs than those over the age of 30 have, according to the Pew Research Center. In 2010, only 41 percent of 18- to 29-year-olds reported working full time, compared with 50 percent in 2006. With such a rocky start to their careers, many simply don't have the money to invest in the market, or believe it's too risky in an uncertain job market.

But with 40 years to retirement, young adults with steady income should think about buying equities on the cheap. Although it seems counterintuitive, the best times to buy are often when everyone else is afraid, especially when the time horizon is long. A well-balanced portfolio that takes advantage of growth opportunities early on and gradually moves more toward cash as the investor ages has been the best way to amass the assets needed for a comfortable retirement.

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1 Comment
August 22, 2011 at 2:36 pm

I took $600/month from monthly systematic investments and put it all toward student loan principal.

Going to pay if off in 3 years as opposed to 20.

Forget the market. Find a business to invest in and do your best.