If there was a prize for living through unprecedented events, the millennials might have taken first place. Older millennials entered the job market during the Great Recession and since then there has been a catastrophic pandemic and an inflationary spike the likes of which has not been seen in 40 years. In addition, the stock market has been reeling from the Federal Reserve’s moves to moderate inflation.
The S&P 500 index officially fell into bear market territory on June 13, having fallen 21.3% from its early January high. (A bear market occurs when a broad market index falls 20% or more from its peak.) After a summer rally, stocks fell again in September, and as of October 7, the S&P 500 was down 23.2% from its peak.
This series of unfortunate events is causing some young investors to pull money out of the stock market or close their brokerage accounts entirely. According to a recent survey by Ally Financial, nearly 20% of investors closed a brokerage or investment account in the past 12 months, and of those, the largest group – more than 20% – was made up of millennials and Gen Zers.
As my retirement savings have been dwindling since the beginning of the year, he asked me the question. But for me, closing my account is a non-starter.
When you sell your investments, you have to decide when you can jump back in. And timing the market recovery is difficult, says Marci McGregor, senior investment strategist for Bank of America Merrill Lynch. A better strategy is to remember why you are investing and stick with your investment plan through good times and bad. If you invest a regular amount of money at regular intervals, you benefit from dollar cost averaging, buying more shares when prices are lower.
Market history 101. Investment should be viewed with a goal in mind. If your goal is a secure and peaceful retirement, keep in mind that for most of us that is 30 years or more down the road. If you withdraw money from the market now or close your account, you will lose the reward of the market refund.
The average length of a bear market since the stock market crash of 1929 is just 9.6 months, according to Ned Davis Research. And while those months are stressful, the good times outweigh the bad: The average bull market lasts about 2.7 years. If these averages hold, we have many more bear and bull markets to survive before we reach our golden years. And if you think inflation and the growing possibility of a recession will prevent brighter days from coming, history says the markets will prevail.
According to research by Roger Ibbotson, professor emeritus at the Yale School of Management, the stocks of the largest companies in the S&P 500 have returned, on average, 10.5% per year from 1926 to 2021. For those rusty in their history, this time frame includes: The Great Depression, World War II, the years of high inflation from 1965 to 1982, which peaked in 1980 at 12.4%, and the Great Recession from 2007 to 2009.
Good investment habits. To calm your nerves, don’t review your portfolio every day. And if you’re in the habit of watching the news, stick to the three-day rule invented by Investment for free Kiplinger income, editor Jeff Kosnett: In any news-driven market crisis, wait until the third business day after the news breaks before trading stocks, funds, gold-anything. After the three day break, if you are still tempted to do something, load up on high quality, dividend paying stocks like those in Kiplinger Dividend 15. That strategy is called “buying the dip”, which means you’re buying good stocks that have fallen a lot, hoping they’ll bounce back. And that means better gains for the future.