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These Investors Know the Secret to Getting Rich

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Last year's financial crisis raised fears that a second Great Depression would intimidate an entire generation of investors out of the stock market for the rest of their lives. By all indications, however, young investors have responded extremely well during the turmoil in the financial markets and stand poised to reap huge long-term rewards.

Never say die
A recent survey from the discount brokerage firm Scottrade shows that across a broad spectrum of investors from all age groups, the youngest group of Generation Y investors, aged 18 to 26, are taking the most active role in managing their finances. Among the smart steps young investors have taken are the following:

  • 24% manage their own investments, more than any other age group. 31% do their own investment research.
  • Significant fractions of those surveyed have learned more about the economy, investing, and their own personal financial situations since the financial crisis began.
  • 23% say that they've taken advantage of good deals on investments. That's compared to just 9% of those aged 27-42, and 13%-14% for older investors.

Perhaps most importantly, 60% of those surveyed expect to add more money to their portfolios over the next year. That doesn't sound like a group that's been intimidated into running away from the financial markets forever. Of course, this age group has a longer time frame until retirement, so you'd hope to see this kind of response.

The right response
It's encouraging to see that young investors aren't letting the recent market turmoil prevent them from striving for financial independence. In the long run, the moves they're making should pay off for them, especially given their long time horizons. But that's not easy for beginning investors who don't have any past experience with the markets, so their confidence and assertiveness deserve high praise.

One reason why younger investors may feel more confident about the markets, though, is that they generally don't have as much money at risk as those who've been saving longer. On a percentage basis, they've likely suffered big hits, especially if they take the above-average level of risk that they can afford to take. Yet by continuing to add to their investments, they'll see their portfolios surpass their former high values a lot sooner than those with greater absolute losses. Half expect to have seen their portfolios fully recover within two years.

In fact, when you take a broader perspective, you can see that young investors who jumped into the market during the financial crisis may well get some of their best returns from their recent investments. The survey indicates that young investors are more conservative than you might expect. But even blue-chip stocks gave investors some great bargains earlier this year. For instance, look at just how cheap some well-known stocks got compared to their prices during more normal circumstances:

Stock

Range 2005 to 2007

2009 Low

Current Price

Johnson & Johnson (NYSE: JNJ  )

$56.70-$69.99

$46.25

$60.94

Coca-Cola (NYSE: KO  )

$39.36-$64.32

$37.44

$54.92

Goldman Sachs (NYSE: GS  )

$94.75-$250.70

$59.13

$188.63

Microsoft (Nasdaq: MSFT  )

$21.46-$37.50

$14.87

$26.71

JPMorgan Chase (NYSE: JPM  )

$32.92-$53.25

$14.96

$47.16

Home Depot (NYSE: HD  )

$25.57-$43.98

$17.46

$27.30

Boeing (NYSE: BA  )

$49.52-$107.83

$29.05

$51.76

Source: Yahoo! Finance.

Enterprising young investors who took advantage of the once-in-a-lifetime opportunity to pick up shares of companies with solid foundations have already seen big rewards. That's an excellent first lesson for investors who are just getting started, and over time, that discipline will bring them even greater wealth.

Investing can be fun!
Perhaps the most encouraging result of the survey, though, was the fact that more young investors think of investing as "fun and interesting" than any other group. It's that desire to make finances more than just something you have to do that resembles the Foolish ideal of combining enrichment and education with amusement.

So, if you've worried that young investors will get discouraged by the turmoil in the financial markets, take heart. From the looks of things, the new Foolish generation isn't going anywhere -- and they're already off to a great start.

There's nothing more discouraging than losing money. Read what Amanda Kish has to say about why this investment is likely to be a big money-loser.

Fool contributor Dan Caplinger was bummed the day he stepped beyond the prized 18-to-35 demographic, but he shares Generation Y's love of investing. He doesn't own shares of the companies mentioned in this article. Home Depot, Coca-Cola, and Microsoft are Motley Fool Inside Value picks. Johnson & Johnson and Coca-Cola are Motley Fool Income Investor picks. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is young at heart and will never grow old.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 18, 2009, at 10:47 AM, TMFEdyboom223 wrote:

    I'm 26 and have been a Fool for 3 years now! I have convinced 3 of my friends to start investing, but many others are scared of investing and unfortunately don't listen when I explain that now is the best time to start saving.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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