Why Should Millennials Invest in the Stock Market?
By Amber C. Pendleton
In the advent of COVID-19, it has become increasingly apparent that multiple streams of income are necessary for survival in this world. Sometimes, a lay-off could occur at work. Or a global pandemic could refashion the whole fabric of the economy and the world as we know it. Even personal illness can restrict our ability to generate an income that will cover all of our human necessities and expenditures. For these reasons, it is imperative that millennials find ways to accrue income in more creative ways. One of these ways is investing in the stock market.
So what exactly is stock or a share of stock? Owning stock in a company means that you have part ownership in that company. For example: An Apple Inc. shareholder is part-owner of the company, Apple. Many people have heard of the stock market and Wall Street trading. There have been several movies made about the stock market even in recent years. Stock trading is essentially buying stock from someone else or trading your money for shares from someone else. The stock market operates like an auction house, enabling buyers and sellers to negotiate prices and make trades. Investors can buy and sell these stocks among themselves and the exchange tracks the supply and demand of each listed stock.
So now that we know exactly what the stock market is, how do you buy stock?
First, in order to buy stock, you need to set up a brokerage account. A brokerage account is an investment account that allows you to buy and sell a variety of investments such as stocks, bonds, mutual funds and ETFs (Exchange traded funds — more on those later.) You can use these funds however and whenever you want. You can set aside money for your college tuition, a down payment for a house or car, or your retirement. You can also gain access to investment research, tools and strategies. Additionally, there are no restrictions on the amount that you can invest and you can earn a tax break from losing stock! TD Ameritrade, E-Trade Financial, and Merrill Edge are all reputable brokerage accounts and great for beginners.
Now that you have chosen and funded your brokerage account, you can research the stocks that you want to buy. What do you pay attention to when you want to buy a stock? Most companies have an Investor Relations page. You want to investigate the company’s annual and quarterly reports and price earning ratio, listen in on conference calls, view and compare income statements, balance spreadsheets, and assess the fair market value of the product. Don’t become overwhelmed as you conduct this research. Your ultimate goal is to look for a company of which you want to become part-owner. As Warren Buffet, American investor and business tycoon famously stated, “Never invest in a business you cannot understand.”
New investor Carisa WIlliams says that so far, investing has worked out for her. She chose to invest because she wanted to attempt to build generational wealth and just for the fun of it! “I decided to do it because, if I didn’t, I would fall into the category of people that don’t know they have the means to do so and would assume that it costs a lot. So far it has worked out for me because I invested in things that I like personally as well as in things that I know the world likes.”
““Never invest in a business you cannot understand.””
Next, when purchasing stock, you want to decide how many shares you want to buy. Initially you want to purchase one share as this will enable you to get a feel for trading. Ideally you want to buy stocks low and sell them high. You want to make dividend income and use it to make gains!
A dividend is a token reward paid to the shareholders for their investment in a company’s equity. It usually comes from the company’s net profits and is a way for a corporation to give something back to its stockholders in a form that isn't monetary. Some dividends can be made monthly, quarterly or annually. They are a great way to build wealth through compounding, which provides more shares as the dividends are paid by the company.
As with any venture or undertaking, there is always room for error. Though a stock market crash is the best time to invest in stocks, you should not throw caution to the wind! The most common mistake in investing is not investing at all!
Don’t keep all of your cash in the bank! Because of inflation, cash loses its purchasing power at a rate of 2 percent per year. That means that after thirty years, it will have lost half its value!
Another common mistake investors make is not having an emergency fund before they start investing. Life does happen, and you don’t want to sell your investments early just to have cash for your expenses. Earlier, I mentioned funding a brokerage account. Only invest in the stock market with money that you don’t need to touch for at least ten years. $1,000 dollars is enough to invest and is a good starter emergency fund. However, don’t wait too long to start investing. There is no perfect time to start investing though, theoretically, the very bottom of a stock market crash is a good time to start investing. No one really knows when this happens, so don’t try to time the market. Create a timeline and stick to it.
Buying stock is one of the best long term decisions you can make financially. Buying stock allows you to diversify how your money is invested and how you make income for yourself and for your family. Stocks have tended to rise over the last 100 years. While there are ups and downs when investing and learning to trade, the odds are generally in your favor that, over time, the market will go up and earn you money once you learn the ropes. It is a skill like anything else that has the potential to passively increase the value of your dollar. I know that you might have reticence about investing in the stock market. It can be risky. However, remember that the journey of a thousand miles begins with the first step. Happy investing!
Meet the Writer
Amber C. Pendleton is a certified bibliophile and lover of all things art. She feels it is supremely important to maintain individuality in a world that is not supportive of autonomy and self actualization. She hopes that through her writing, she can help plant seeds of divine love, self love, and identity.
