How Badly Will Millennials Get Burned When Stock Markets Crash?

How Badly Will Millennials Get Burned When Stock Markets Crash?

Stock market rallies in recent days have been characterized by wild price gains on the flimsiest of positive news. For instance, publication of the results of a vaccine trial on eight people raised such hopes for a coronavirus vaccine that stocks gained over 900 points. Yet there was no data, the study was small, there were numerous conflicts of interest, etc. But no one seemed to care, because hope seems to be the only thing buoying things right now. When reality sets in, watch out.

An increasing number of millennials are getting into stock investing right now. With stocks having fallen far from their record highs, especially in March, numerous pundits touted this as the best time to buy into stocks at a “discount.” Certainly March’s lows were the lowest stock markets had been in four years, so it’s understandable that some might have seen buying opportunities. But now we’re in the time for selling and reaping gains, before the bottom falls out of markets. Will millennials understand that?

Only older millennials were of investing age during the 2007-2009 financial crisis. They remember well how stock markets lost over half of their value, while some investors lost even more than that. Many also remember how gold nearly tripled in value after 2008, and was the darling of investors for a number of years. Younger millennials didn’t live through that experience, and their memories of that time may not provide them with the warning they need to avoid tragedy this time around.

Younger millennials may also have forgotten just how long it took the economy to recover after 2008. To them, stock markets have been largely going up, up, up as long as they’ve been alive, so why not capitalize on a temporary retrenchment? They aren’t aware of 2008 and the financial crisis, and even less of the dotcom bubble. And many of them have piled into stock-buying services like Robinhood, lured by the attraction of free trades and discounted stocks. But when stock markets take their final turn downward, they could get badly hurt.

The ability to save for retirement is dependent on building up wealth early. The more you can grow your retirement assets early on in your career, the better you will end up in retirement. With so many millennials piling into stocks right now, they’re risking their ability to save up for retirement by placing all their eggs into one basket.

Stocks have long been touted as one of the best means to save money for retirement. You’ll often hear about the long-term 7% return of stock markets. But over the past 20 years, stocks haven’t been that great. Both the dotcom bubble and the financial crisis have really hammered stock markets.

Since the beginning of the century, the S&P 500 has seen annualized gains of 4%, while the Dow Jones Industrial Average has seen annualized gains of 4.2%. Gold, by contrast, has seen annualized gains of 10.2%. So most investors would have been better served investing in gold over the past two decades than by investing in stock markets.

Hindsight, of course, is always 20/20. So what should investors do now, especially millennials who have 20-30 years or more of investment ahead of them before they retire? Should they trust in the resilience of US industry and hope that the next 20 years will see another stock market boom like 1982-2000? Or should they start putting their assets into a gold IRA, trusting that gold will continue to outperform stock markets? Their choices today will determine their ability to retire in the future.

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