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A story over at CNNMoney.com caught my interest. It told of a young man of 18 years, deciding to pull his $25,000 investment in an aggressive mutual fund, out. When he was tired of seeing his money dwindle down during the decline in 2008, he moved it to a certificate of deposit.
While all investors have become more cautious, the biggest change has come from those in the under 35 crowd. The youths have witnessed the decline in the value of their parents portfolios and seen how their parents have decided to delay retirement or even go back to work. The younger investors consider themselves more conservative today than they were a year ago.
If your in your 20s you have seen the market drop 55%, climb 88% and then drop again in a short span of time. During the last decade you seen the stock market return 0%.
This younger generation will probably live to 100 and beyond, because of all the medical breakthroughs now and the ones they will see when they retire. The only way they can afford retirement is through the investing in equities or they will be working way past the time they want to retire for lack of assets.
Like us all, the under 35 crowd is leery about investing in the volatile stock market. History reveals that equities have earned 7% each year after inflation over the last 200 years. It most likely will continue. Has this been the worst market decline? In modern times, yes. But don't forget the early 90's and 1987 decline. If you really want to check out declines, check out the Dow Chart from 1900-2010 at this link.
There have been corrections of 50% or more, over and over again throughout the the stock markets history and there will be again. Why does it shock people, like this has never happened before. If you keep investing in good times and bad you will come out at the end. The fear people feel when their investments go down is unnerving. A great decline like we just went through, makes people afraid and sometimes scares people away from investing. It still is the best way to go if you are in for the long haul.
While all investors have become more cautious, the biggest change has come from those in the under 35 crowd. The youths have witnessed the decline in the value of their parents portfolios and seen how their parents have decided to delay retirement or even go back to work. The younger investors consider themselves more conservative today than they were a year ago.
If your in your 20s you have seen the market drop 55%, climb 88% and then drop again in a short span of time. During the last decade you seen the stock market return 0%.
This younger generation will probably live to 100 and beyond, because of all the medical breakthroughs now and the ones they will see when they retire. The only way they can afford retirement is through the investing in equities or they will be working way past the time they want to retire for lack of assets.
Like us all, the under 35 crowd is leery about investing in the volatile stock market. History reveals that equities have earned 7% each year after inflation over the last 200 years. It most likely will continue. Has this been the worst market decline? In modern times, yes. But don't forget the early 90's and 1987 decline. If you really want to check out declines, check out the Dow Chart from 1900-2010 at this link.
There have been corrections of 50% or more, over and over again throughout the the stock markets history and there will be again. Why does it shock people, like this has never happened before. If you keep investing in good times and bad you will come out at the end. The fear people feel when their investments go down is unnerving. A great decline like we just went through, makes people afraid and sometimes scares people away from investing. It still is the best way to go if you are in for the long haul.
Young investors are making a mistake if they are bailing on stocks and going into bonds or money market funds. I'm not a fan of aggressive mutual funds; they tend to be dogs that flame out in the long run. But I do like value funds and balanced funds for the long run. Compare thirty/forty year stock charts to thirty/forty year bond charts (and keep in mind we've been in a bull market for bonds since the early 80's that is likely to end in the near future). A prudent mix of both assets using age as a rule of thumb to determine bond allocation makes a lot of sense.
ReplyDeleteThe thing with stocks is that they are cyclical, so while we are seeing some recovery now, there is always the chance there will be another big downturn. So people should consider their risk tolerance as well as the various kinds of stocks they can purchase. For some good basic information, take a look at http://www.mutualfundstore.com/investment-planning/about-shares-stock-companies-market-cap.
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