By all accounts, millennial investors have been participating in the current ASX bull market with enthusiasm. Last month, I reported on how investors aged from 18-35 (a.k.a. millennials) were embracing the market volatility 2020 has brought us so far with gusto — in some cases too much gusto.
Whilst I applaud the fact that younger investors are participating in the share market, it’s also important to remember that mistakes can and likely will be made if one doesn’t have much experience under the belt. Remember, for most investors under at least 30, 2020 would have been the first year that a significant market crash occurred on their watch. We Fools hate to see anyone who makes a nasty mistake or loses a significant sum of capital put off the share market for life.
So today, we’re looking at 3 tips that, in my view, millennial investors can use to foster some good investing habits.
Millennial investors should always think long term
The best aspect of the ASX share market is the ability to harness the power of compound interest. And if you’re a millennial, chances are that you have a long time horizon in front of you. So take advantage of this natural upper hand by trying to achieve a stable, consistent and hopefully market-beating return year in, year out. That’s basically how legendary investor, Warren Buffett, built his billions. And it’s the best way, in my opinion, to view the investing process. So don’t kneecap the compounding process by continually dipping in and out of shares, ‘betting’ a growth share will double in a week or playing around with risky options. Investing for the long term may not be as exciting as some of the above activities, but it will give you a better chance of really building wealth with ASX shares, in my view.
Don’t buy shares just because they’re going up
There have been a few eye-popping ASX share movements since the market crashed in March. Afterpay Ltd (ASX: APT) is one such example. Afterpay shares have exploded more than 750% over the last 3½ months. No one has more FOMO on Afterpay than this writer, but you tend to see a massive inflow of buying pressure when a share price goes parabolic like that. This can be described as ‘buying high’ or ‘jumping on the bandwagon’. This is a dangerous game to play, and one I think millennial investors should largely avoid as it fosters neither good investing habits nor decent long-term returns, in my view.
Millennials – stick to companies you know
When you are buying shares, you are really buying an ownership stake in a business. If you were offered a share of someone’s business outside the share market, would you buy in without thoroughly understanding how the business makes money? I doubt it. Yet that’s the mistake many millennial investors make with ‘hot’ stocks like Afterpay, Zip Co Ltd (ASX: Z1P) or ASX cannabis shares. If you find it too difficult to understand a particular business and how it makes money, it’s probably a good idea to move on to a different company or industry, or else just stick with market-wide exchange-traded funds (ETFs).
Foolish takeaway
I think it’s great that young investors are trying their hands at the sharemarket. But converting millennial ‘traders’ into long-term investors is sometimes a hard task. So hopefully these tips can prevent some painful mistakes that may put you off investing for life. That’s the worst possible outcome for a new and aspiring investor.
3 “Double Down” Stocks To Ride The Bull Market
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More reading
- Broker warns Afterpay and these ASX stocks are caught in an overcrowded trade
- Why these are the top performing ASX 200 shares over the past year
- Why Afterpay, ELMO, Oil Search, & Paradigm shares are racing higher
- ASX 200 jumps 1.3%: Big four banks drop lower, Afterpay up after U.S. update
- Why De Grey, Openpay, Woodside, & Zip shares are dropping lower
Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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