The investment school of hard knocks

There has been a lot of talk about millennials over the past number of years. And, clearly, the age cohort tends to get characterized by a certain type of stereotype: millennials are spoiled, they don’t know what life is really like, previous generations have had it tougher, etc. However, when it comes to investing, the stereotype, even if exaggerated, might serve as a teaching moment.

The need for life lessons

Specifically, according to David Lafferty, senior vice president of Natixis Investment Mangers, and as reported by CNBC, the experience millennials mostly have of investing involves the last number of years, and this period has essentially been a bull market. As a result, Lafferty believes that such investors have never experienced the inevitable bear markets that happen over time and, consequently, don’t get to experience first-hand what risk is really like.

Think about it for a moment. It’s one thing to say all the right things when it comes to investing: that you have to think about the long-term, and ups and downs will always happen. But, if you’ve never really experienced a serious downturn in the markets, does the lesson really stick?

The human touch

And, according to the same article, what’s adding to the potential problem are automated investing services, or so-called robo-advisors, that make automatic decisions for investors, including millennials. While such services certainly make investing easier, in some ways they miss the point of investing entirely.

In order to become a good investor, one actually has to learn how to invest, instead allowing others, or other things, to do it for you. That’s not to say that people shouldn’t hire investment firms, or deploy robo-advisors under the right circumstances. But even an automated solution needs human wisdom behind it. So, the use of any help in investing should also come with personal observations and judgement.

That’s why living through investment downturns, on top of any real-world investing experience you can get, can provide some real-life learning to develop the long-term outlook needed to meet your financial objectives.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.