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Stock Market Jitters, Millennials? Relax

Back in December, the Vanguard Group predicted a stock market that would “remain placidly subdued” in 2018.   What a difference two months has made.

A Morgan Stanley analyst, echoing many on Wall Street, has now declared, “The long-anticipated return of [stock market] volatility has arrived.”  The Standard & Poor’s index of 500 stocks slid 10 percent in a few days in late January and early February, bounced back, and then dropped again last week: the S&P declined another 2 percent, and the Dow index was down even more, by 3 percent.

No one can predict the future, of course – not Vanguard or Morgan Stanley.  “Time will tell,” the analyst said.  But while baby boomers have been thrown around by the stock market and witnessed a recovery in their portfolios, young adults might not be so chill.

Here are some earnest words of comfort, Millennials: you are truly the lucky ones.

“You’ve got a long time horizon to ride this out,” is how Rick Epple, a Minnesota financial adviser, counseled his daughter, Bridget, a college senior, who has a Roth IRA from her summer jobs. Remain zen was his message: “Stocks are risky, and “you’ll get compensated for the risk.”

But this is what you should be concerned about: the typical Millennial has only $17,000 in net worth in 2016.

This is less net worth – savings minus college and credit card debt – than Generation Xers and baby boomers had when they were in their mid-20s to mid-30s.  Millennials are behind the financial 8-ball, because of unprecedented student loan levels and lower rates of homeownership.

But the wrong move would be to leave the market in an attempt to preserve what they have, said Epple of Aurochs Financial Group.  During a recent interview, he shined a softer light on the market’s volatility:

Perspective.  The beauty of being young is that you’ll most likely come out on top by your 60s. There are no guarantees the market always goes up, but it has historically increased over the long term. And Millennials have a lot of long term ahead of them.

More perspective. The stock market is back to where it was in early January. Were you worried then? Probably not after the 19 percent surge in 2017.

Volatility.  It goes with the territory.  Young adults who are invested in the market can count on some gut-wrenching ups and downs in the future.

Stick with the plan.  During the 2008-2009 stock market rout, boomers on the cusp of retiring called their financial advisers in a panic. The 30-plus percent drop was what the Federal Reserve chairman at the time, Ben Bernanke, a Depression-era scholar, argued was the worst global financial crisis in history. Many investors pulled out.

It took more than five years but the market did recover, and the boomers who sat tight have gotten their money back – and more. Epple said Millennials’ best strategy is to invest about 80 percent of their 401(k)s in stocks. Two good options are low-cost index funds that track specific stock market indexes and Target Date Funds that adjust a portfolio’s risk as you age.

Saving for retirement is a long-term strategy. Set your investment strategy and forget it.

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6 Responses to Stock Market Jitters, Millennials? Relax

  1. Diane Nissen says:

    Staying the course is important. And everyone who invests in the market needs to remember it’s about the long-term and not about timing the market.

    While starting young is a huge advantage, we must not forget that retirees could potentially need to support themselves for 35-40 years. They too, need not to panic when the market fluctuates.

    • Ken Pidcock says:

      But it is important that retirees recognize that they are not in the same boat as 25 year olds. For one thing, market declines no longer represent opportunities to buy assets cheaply. Retirees must remain especially attentive to sequence of returns.

  2. Elin Zander says:

    Volatility is the friend of those who are regularly contributing to a retirement account, such as a 401(k), via dollar cost averaging. When stocks go down, your contribution buys more shares. Just continue to contribute as much as you can afford to (or maybe more) to your retirement account, live frugally, and enjoy your life. (No, the last two are NOT mutually exclusive!)

  3. Young people may have the time frame to recover from a market correction, however that doesn’t mean they are willing to lose money. Many young people are nervious about the markets and adverse to risk, we should be less glib about the markets and design advice for their concerns.

  4. While starting young is a huge advantage, we must not forget that retirees could potentially need to support themselves for 35-40 years. They, too, need not to panic when the market fluctuates. Many young people are nervous about the markets and adverse to risk. We should be less glib about the markets and design advice for their concerns.

  5. I have butted heads with the financial elite for a number of years regarding young people. The prevailing wisdom is young people should embrace risk because they have a long time frame. I think that many young people are distrusting of the markets and more risk adverse than people assume. You have to consider that for the people in their 30s, their formative experience in the markets has been miserable. Look at the success of bitcoin and similar cryptocurrencies, reading between the lines the popularity of cryptocurrency is a vote of no confidence in the ”system.”

    I have said it several times; everyone needs to be less glib about the market. When people are struggling to save money, losing a bunch of money in the market is upsetting and discouraging. Telling people just to, “hang in there it will come back,” is not that reassuring.

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