Stocks closed out 2019 in stellar fashion. That should be cause for celebration. But there’s one group that has missed out on much of the market’s gains–millennials. Just 49% of millennials in the United States (those ages 23 to 39) held stock at any given time in the last two years.
Because a much larger percentage of Americans in the same age range held stocks before the Great Recession, observers say that stock performance in 2008 is the main reason that many millennials steer clear of equities. Who can blame them for being a little gun shy? In 2008, the S&P 500 plunged more than 38%. But holding on to that kind of trauma can be dangerous. The turmoil that shaped the economy during millennials’ formative years has kept them away from recent market successes.
The timing of the Great Recession meant that a group of millennials started their careers in a tough job market, and those who found jobs faced wage stagnation in the early years of their careers, making it less likely that they would have extra money to save and invest and therefore harder for them to accumulate wealth. According to a report by the Federal Reserve Bank of St. Louis, older millennials — those born in the 80s — have the greatest risk of becoming a “lost generation” for wealth accumulation. As of last year, they had 34% less wealth than they would be expected to have if the financial crisis hadn’t happened — a greater shortfall than any other decade cohort.
As millennials are entering their prime earning years, they hold much less wealth than the generations that preceded them. And the wealth gap between young and old is widening. According to that report by the St. Louis Fed, the median baby boomer-led household has nearly 13 times as much wealth as the typical millennial household.
Avoiding stocks is an almost surefire way to lose out on making your money grow over the long term. And investing in stocks is the single best thing you can do to grow your wealth, but you have to be invested in stocks in order to make money from them.
Millennials are right about one thing: investing involves risk. But you have to take some risk in order to get some gains. The two go hand-in-hand. The average total return (price gains and dividends) of the S&P 500 index is about 10% per year over the long term. Of course, it can be volatile from one year to the next, as we saw in dramatic fashion in 2008–and in 2019, as well. Keeping money in less volatile investments has a role to play in one’s overall financial plan, but too much money in “safer” investments loses value and purchasing power over time thanks to inflation.
Many millennials are concerned about another 2008-style shock to markets. But fears of a market correction should not be a barrier to getting into stocks. Neither should the all-time highs that stocks have posted recently. One way to invest that helps insulate investors of all generations from the market’s ups and downs is dollar-cost averaging. That means buying the same dollar value of same set of investments on a regular basis, regardless of whether the market is up or down. That way, you end up buying more shares when prices are low and fewer when they’re right. But the average cost of those investments often ends up being lower than if you were to just dump your money into stocks at one time.
One last note to all our readers: It’s not just millennials who are less interested in stocks than before the Financial Crisis. Over the last two years, 55% of the adult American population owned stocks directly or indirectly, down from 62% before the crisis, according to the polling group Gallup. That’s not good for anybody, especially considering the market gains of late.
The moral of the story is to have a plan and stick to it, wherever the market may be at any single point in time. If you need a plan, we can help. If you feel like you want to reassess a plan you already have, we can do that, too. Let us know how you’re feeling, and we can pass along some of our knowledge. Benefit from our expertise. It’ll help you when you’re not quite sure what to make of headlines in the financial press.
