In this article, CNN explores the new trend of younger investors. Now those in their 20 and 30s are unwilling to take risks in the stock market. Some have seen the stock market dive unpredictably and ruin people's invested money. So the question arises, as less and less people are willing to invest and take the risks in the stock market, how will that effect the market?
I think that younger investors totally have reasons to fear investing, and with the randomness of the economy, especially in our lifetime, there are obvious reasons to be skeptic. Personally, I am unsure if when I am old enough to spend some of my money on investments, if I won't just invest in safer mutual funds.
I think that this will have a direct on the condition and growth of the current and future economy. I can see this causing the economy to stay low because of the lack of new investments. I can also see a more stable economy (for better or for worse) as a result.
I think that you brought up a great point with this article. With past problems with the economy this will definitely be something to question in the near future. What I am curious about, is how soon this could affect the market? Are we talking our generation will hold off of the stocks, or even farther in the future?
ReplyDeleteI feel like this would be a more gradual change as it changes the market. It doesn't seem like one day all young people will suddenly stop investing; rather, it's talking about more of a slow decline with the younger generations when it comes to the willingness to invest money. It is though something important to think about over the course of the future years.
ReplyDeleteI believe young people will be less tempted to take big risks in the stock market. Since they are young, they wouldn't want to lose all their money right away and take a loss. I think the young people would want more experience before taking huge risks. If less people take risks in the stock market, I feel that it won't hurt it that much because it depends how many young people stop investing their money.
ReplyDeleteI think this article made a lot of strong points and brings up possible issues with the economy. If less and less people were to invest in the stock market, then the economy will gradually decline. For those who have already been investing in the stock market, they may find that, with the sudden decline, it is much more difficult to make a profit. Over time, the decline will potentially lose more investors and trigger a chain reaction.
ReplyDeleteI have to agree with Benjamin on this issue. The economy almost completely relies on risk-taking businesspeople to keep the stock market rolling. The last time overly conservative shareholders ran the market, we had what is now known as the Great Depression.
ReplyDeleteI think that Eddie touches on something important for first time investors. They must choose between investing in stocks or bonds. In my opinion, bonds are the safer option. They also teach other things to investors.
ReplyDeleteFirst, bonds preach the importance of being patient. Many times, one negative report concerning a company can cause many people to sell their stocks right away. Generally, bonds carry lower risk and lower reward than stocks. In order to make money on low risk, low reward shares, one must learn to wait the course and not jump too quickly to bad news. If one is truly confident in their bonds and the company's history is positive, then there is no need to worry.
Also, bonds can help first-time investors learn to think long term on their investments. Bonds do not usually see large gains in short periods of time, but instead show slow and steady growth over longer periods of time. Staying the course may help somebody realize larger profits on their investments.
I don't feel that stocks are "bad" investments, but I believe that stocks are best handled by experienced investors who understand the market better.
Warren brings up a good point when he says that the market relies on new investors for growth. Eddie said that he foresees a more stable economy, and noted that such an economy could be better or worse, but I must say that a stagnant economy cannot compete in the world economy. If it is not getting better, or growing, then it is getting worse. Without sound investing in the economy, the free market economy cannot function.
ReplyDeleteJeff brought up a very interesting idea in bonds. Although I think that bonds are important, I don't they should not be used by younger people overall. See the average return with bonds is right at about 4-6% and that is only about 1-2% higher then inflation. So in essence the goal with bonds isn't really to grow your money, as much as it is to keep it safe. What many investors do is originally invest in stocks, and as they go through life, they are no longer willing to take as high risks, so they move it over from stocks to bonds later in life, which makes far more sense. But I agree that picking other safer options are very smart for younger people. I also think that for less experienced and less knowledgeable people, maybe controlling their own stocks isn't always the best corse of action.
ReplyDeleteI think that I may have worded a section wrong. When I said the economy may become more stable for better or worse, I was implying worse. That is how I have usually heard it used, but I see how that isn't very clear. Sorry, and I fully agree with Robby's point.
The discussion on bond investing has interesting points of view, but to understand the purpose of investing in bonds deals specifically with what a bond is. A bond is a loan or contract between an issuer (which can be a government entity or business) and an investor. Basically, an investor pays x amount of dollars to the issuer and receives interest over a period of time. This interest the investor receives varies based on the bond grade and the prevailing interest rates. At the end of the bond contract, the investor receives par value (value issuer agrees to pay investor when the bond matures).
ReplyDeleteThe basic concept of how a bond works is simple to understand, but including all the possible variables which affect a bond make it rather difficult. First, the price of a bond can either be purchased at a discount, at par, or at a premium price which depends on the interest rates. For instance, if interest rates are high, the price of a bond will be selling at a discount value. If interest rates are low, the price of the bond will be selling at a premium. They have an inverse relationship and considering interest rates are low at this time, one could conclude this is not the best time to purchase a bond. As the investor would be receiving lower interest and have to purchase the bond at a higher price. Then as interest rates rise, the price of the bond will lower and if the investor decides to sell early, they will encounter an early transaction fee and the bond would sell at a lower price than what they paid. As well, there are issues with inflation and currency fluctuations which can alter the present value of the bond and the investor’s overall return.
In regards to the risk aspects of bonds, when comparing the bonds and common stock of the same company, the bonds are less risky because of the contractual claim between the issuer and investor. The contractual claim offers the investor of a bond to receive funds before any shareholder receives theirs in case of bankruptcy. This does not make all bonds a safe investment though, as some bondholders might not receive a dime during bankruptcy. Also, the bonds of one company may carry far more risk than the common stock of another. For investors to have a better idea on which bonds are risky, they use analyst ratings, which place different grades on bonds to determine their risk levels. The lower the grade, the more risk involved, which would pay a higher interest to the investor. This works the exact opposite with a high grade bond, which would have less risk involved and pay a lower interest to the investor. After having a better idea on bonds, who are they suitable for?
(Investment grade) Bonds can be used for two investment strategies, which are income and capital preservation. These two strategies usually deal with investors who are either near retirement or are retired. The reason why it falls into those categories is from the idea, that if you lose money at an older age, you don’t have the same timeframe to make the funds back. Inversely, if you are younger, you have the ability to earn those funds back. In the long run, although there may be greater fluctuations, the stock market will outperform bonds, which is why young investors should be involved in equities.
I think that Eddie made an interesting point, but I disagree with the fact that the market will decline. Young investors are usually more cautious, but I don't think that they are any more cautious now than they ever were. There have been multiple drops in the market and they have never been permanent. I think that each generation of young investors is cautious, but as they mature they begin to take more risks.
ReplyDelete