Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.
At the beginning of the pandemic and after some dramatic stock market drops, I had a thought. Maybe my generation, millennials, should start investing right now if they haven't already.
Maybe, after years of lugging around student loan debt, paying most of our low starting salaries on rent, and being underemployed, we could finally use this big drop as a chance to get ahead. I found out that my similarly aged friends had also been wondering this, and naturally, I needed an answer.
Since I was already planning to interview two experts on investing topics for some other stories, I figured I'd ask them their opinions on whether or not younger investors should see this as an opportunity.
For people in their early 20s like I am — those who are just starting to think about saving for retirement and investing, and who happen to be coming of age in this pandemic — it seems like a no-brainer. But, I found out that the way a majority of my generation approaches investing means that they probably shouldn't start now.
Many of my millennial friends got their first forays into the stock market with stock picking via a platform like Robinhood, or earning stock options from companies. They're used to the idea of choosing what they buy. According to data from investing software company ETNA, about 72% of millennials describe their investment strategy as self-directed, where they pick their own investments.
But right now, experts say that's a dangerous method.
I asked financial planner Howard Hook with EKS Associates in Princeton, New Jersey, about starting to invest right now. His answer for a majority of people wanting to buy individual stocks was quite simply: Don't.
"We're not market timers, we're doing long term buy and hold. We would never recommend clients to get into the market now as an opportunity," he told Business Insider in March. "It's just not the way we manage money and financial planning."
In another interview with Sallie Krawcheck, a former Wall Street executive and now CEO of Ellevest, I asked for the worst advice she's hearing about investing lately. She quickly said one of the worst pieces of advice she's hearing involve taking action by investing now, especially with individual stock picking.
"For an individual investor to think they somehow know something that the market doesn't know and to be able to trade around it and make money is an absolute fool's errand," Krawcheck told me in March.
Now isn't a time for firing up a brokerage app, buying individual stocks in companies you think will boom after coronavirus ends, or trying to snatch up shares of pharmaceutical companies with hopes of cashing in on a cure. In short, that strategy won't end well.
Business Insider's Linette Lopez reports that over 800,000 new brokerage accounts have been created with three of the four largest brokerage firms since the start of the pandemic. But the market is far from normal right now, and it's not a place for the newly minted investors to try their hands at hitting it big.
"We have bored, unseasoned, emotionally conflicted investors playing around in a murky pool where one of the most opaque sectors has the ability to make the biggest waves," Lopez writes. "People are going to drown."
Hook says there's a one group of people who are exempted from his previous 'don't start now' investment advice: anyone who wants to start a consistent, long-term investing strategy. "We're not necessarily saying don't get into the market if you have cash and you're ready to invest it and have a long time horizon. Then, now should be no different than any time," he says.
"If [the advice] is to do anything, it should be to increase your recurring deposit into your diversified investment portfolio," Krawcheck said. Her comments actually prompted me to think a bit differently about my own investing strategy, and ultimately to switch from a stock-picking strategy with Robinhood to a safer, long-term strategy of buy-and-hold.
Krawcheck's advice is to play it safe right now — keep investing if you can, don't if you can't. Added to Hook's advice, this includes anyone who hasn't started, but wants to start investing in a way that's stable and automatic. Now is the time to start increasing 401(k) contributions or increasing a recurring deposit to a brokerage account.
According to these two experts, investing in this moment shouldn't be about getting ahead; it should be about staying on course, or starting the course if necessary. Now is as good of a time to get into the market or stay in the market as any, but only if you're planning to do it in a stable way. Anyone who's expecting a miracle — my age or not — should probably take the time to to re-think their goals instead of taking action.