Keith Parker, UBS' chief US equity strategist, says millennial investors have been scarred by the stock market turbulence that's unfolded throughout their lives.
As part of a wide-ranging interview, he offered some suggestions for how millennials can better handle their investment future.
It almost goes without saying that millennials haven't been dealt the greatest set of investing circumstances.
The dotcom bubble of the early 2000s was the first scar on their psyche, and it was followed less than a decade later by a financial crisis that saw the failure of multiple large US banks.
Even now, with US equities firmly entrenched in the ninth year of the bull market, purchasing stocks is a tough sell, simply because valuations have gotten so extended.
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5 financial choices that will haunt your money for life
5 financial choices that will haunt your money for life
Sitting on the markets sideline
While the stock market is soaring to new highs, half of Americans are being left out of the gains. Bankrate found that only 46% of adults have money invested and only 18% of the youngest adults are involved in the market.
While many people fear losing money, the true concern should lie in missing out a potential fortune. Over the long-term, a well-balanced portfolio will always come out with a net gain. With compound interest at stake, investing as early as possible is the smartest move.
If you're not already in the stock market, now is the time to start. If you have a longer investment period in mind, it could make sense to take on more risk.
Not having a rainy day fund
There are so many things that can go wrong in life and someone who is smart with their finances will be prepared for anything. Expensive emergencies like a car breaking down or a medical emergency can happen whether you are ready for it or not.
Experts recommend your emergency savings be able to support you for three to six months. That's a conservative estimate for how long it takes to find a new job after being fired, for instance.
Having enough money in an easily accessible emergency fund prevents you from taking out loans in desperation or from going into debt.
Waiting to pay off debt
After investments and emergency savings, you may feel your paycheck dwindling. That feeling will only get worse if you don't pay off outstanding debts.
From student loans to mortgage payments, debts are pesky. But the thorn will only get sharper over time if you ignore them.
A team of researchers writing in the Harvard Business Review this year suggested paying off the largest debts with the highest interest rates first. Credit card interest rates are notoriously high, so paying those off before going after more manageable debt, like student loans, may be a smart move.
By understanding your worth and the value you provide at work, you can earn more every year and maybe even retire early. If your company won't give you that raise, it may be time to search for a new job where you are payed in accordance to your value.
Spending too much money
Overspending is a problem many people fall victim to, but you shouldn't spend all the money you make, according to Eric Roberge, a certified financial planner and founder of Beyond Your Hammock.
"Spending right at your means, even if you don't go over and spend more than you earn, is like trying to take a race car up to 200 miles an hour with a warped wheel," he wrote in an article on Business Insider.
"If anything goes wrong — you hit a bump, you swerve, whatever — you're done. There's no second option when you're going full throttle in your financial life. There's no safety net."
Leaving room in your budget to save some of your earnings will set you up so you're not scrambling for money when you need it most.
In other words, learn to live below your means.
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This burgeoning class of millennial investors needs to shrug off those overhanging fears and dip its toes into the stock market, says Keith Parker, UBS' chief US equity strategist. He argues that any strong long-term portfolio should have a considerable equity portion, and he even has some ideas how young investors can deal with current market conditions.
In an interview with Business Insider, Parker elaborated on those thoughts and also expressed views on his bullish 2018 forecast, President Donald Trump's newly announced tariffs and the prospect of a trade war, and his biggest fear for the market. Read the full interview here.
Here's what Parker had to say (emphasis ours):
"For better or worse, we're all functions of our own experiences and biases. The younger millennial generation has witnessed a financial crisis, housing collapse, and stock market collapse — all very recently.
There's temptation to believe that could continue happening again. It's getting over that inherent cognitive dissonance with investing that allows you to put money to work. And over the long run, it does pan out.
Save when you're young. The benefits of annual compounding interest when you don't need the money now is tremendous.
Investing early, and investing in growth assets like equities, is recommended. Diversify exposure as well, possibly looking outside the US into something like emerging markets. Equity valuations aren't cheap, but over the long run you have corporate in a strong growth backdrop, and you have a government doing pro-business policies.
Stay with secular themes. Over the long run, certain sectors and industries have defensible business positions — in technology, healthcare, and industrials — will outperform during this."