Are We the Lost Investment Generation?

The recent information on investments indicates that individual investors have been fleeing stocks and investing in bonds.  Unfortunately, for many of these investors this means that they likely lost a lot of money in the stock market down turn of 2008, and then failed to stay invested during the recovery of 2009.  In addition, it appears most investors are staying out of the current markets.  While the volatility remains a concern, the main issue is that most investors are likely to suffer from being overly conservative, in particular, are unlikely to stay ahead of inflation.  Here are some of the biggest risks that the lost investment generation may be in for:

–Continue to save and invest regularly for long-term goals — especially for retirement, university education for the kids and goals like a down payment on a mortgage. The main issue most people have with retirement is not saving enough each month, especially early on.

–Stop trying to time the market — unfortunately, except for the very rare few, most people tend to panic when markets are down; and feel overly euphoric when markets have a big run up.  This causes them to buy high and sell low.  For most people, regular automated investments are better.

–Keep a diversified portfolio — another risk that most people have is to think they can pick the best asset.  At present it appears most retail investors are putting their money in domestic bonds.  This leaves them at risk for inflation as well as missing on upside in the equity market and strong performance by international markets.  In addition, too many people are concentrated in a small number of stocks or in company stock.  This concentration isn’t prudent from a risk management perspective.

–Avoid high fees for investment — although it is hard to time asset allocation or investments, one action is easy to boost your portfolio and that is eliminating high fees on investment products, accounts, or management fees. If your advisor or fund is charging a high fee (like 1-2%), look into index funds, ETFS, and other low fee investments.  For the most part, very few managers can overcome a 1% performance difference a year, every year for several decades.

Sadly, if too many people panic due to the performance of the market in the past couple of years, we could indeed become the lost investment generation.

shared at this week’s Carnival of Personal Finance