While much attention has been given older investors in the stock market as they prepare for retirement, younger investors face their own problems.
Younger investors must deal with:
- A struggling economy
- High unemployment
- Significant student debt in some cases
- An erratic stock market
- Uncertainty over government retirement programs
The problems facing young adults today may outweigh their concern for retirement, but now is exactly the right time to begin planning for that date in the future.
Some 30 or 40 years from now no one can be certain what health care benefits or retirement funds from programs such as Social Security will be available.
Young investors should think seriously about a program of regular investing to begin building the wealth they will need to retire in the future.
The way things stand right now, no one should bet on Social Security as exists today or Medicare in its current form being around for their retirement and 30 or 40 years.
Given that the future is always unknown, the best strategy is to hope for the best but plan for the worst. In this case the worst can be mitigated by a significant retirement fund that can be built over time without impinging to severely on young investors lifestyles today.
It is often assumed the young investors are less risk adverse than older investors. This is not always the case and in the economic circumstances of today is probably not a wise decision.
That's not say you investors can't take some risk with their retirement funds, such as investing in small high-tech companies that could prove to be the next Apple or Microsoft.
However betting the farm on small high-tech companies is a very risky proposition and although 30 or 40 years sounds like plenty of time to get your retirement house in order, but don't count on it. I don't think it's reasonable to expect the kind of historic returns the stock market has delivered certainly not over the next 10 to 12 years.
That being said that while what is a young investor to do today build a significant retirement fund that can be tapped in the next 30 to 40 years?
While the devoting part of your investment to more risky growth stocks is not out of the question, the bulk of your investment portfolio should probably focus on those market leaders today that have the financial strength to weather a number of years of slow or stagnant economic growth and still provide wealth for their owners.
These companies can be found in many different industries, but share some common characteristics.
First, they are dominant or nearly dominant in their markets, which allows them some real control over pricing and costs. Walmart has proven the strategy to be successful although I'm not recommending you invest in Walmart stock.
What Walmart has done that is build a global supply chain and market dominance that lets then drive hard bargains with the suppliers, which keeps costs low and allows the chain to offer products at very low prices.
Second, they keep debt at a minimum and use it wisely. In addition, these market leaders sit or have access to large supplies of cash. Staying financially strong allows these market leaders to retain key employees that might be laid off by weaker companies.
A strong financial position also lets market leaders acquire competitors or other companies that can strengthen its market position.
Market leaders put innovation and customer satisfaction ahead of immediate financial concerns. Companies such as Apple went from near bankruptcy to the most dominant technology company in the world by focusing on a combination of products, services and customer experience.
You may have other criteria for market leaders.
This is not an autopilot strategy. Just because a company is a leader today doesn't mean it will always be in that position. Wal-Mart has struggled and Apple may be an also-ran in 10 years. There are no guarantees in investing.
Young investors should begin now with a steady program of investing in a combination of market leaders and growth companies. A consistent program of investing with at least annual reviews of your holdings is the best strategy in an uncertain world.