Effect of market turmoil on my generation?

[soupcxan]

I'm curious what the long-term impact of the market's turmoil will be on the 25-35 year olds out there that are starting to establish themselves in their careers and generate real income. Will we stop buying (or at least cut back) equities and shift to bonds? Or take advantage of it as an opportunity to load up on more shares? Will we pay more attention to their monthly expenses and stop buying so much junk? Or decide that saving is a losing game and figure they might as well live for the moment and splurge? Will they focus on paying down debt (credit card, mortgage, student loans) before investing for retirement?

Personally, I'm a budget-minded, debt-averse, conservative allocation type of person. But I was already this way before the market fell into a death spiral.

 

[TeeRuh]

well ... my 35 year old dd will now be stuck with taking care of dear old dad since his life savings are rapidly going up in smoke ...

 

[ER_Hopeful]

well, I'm in my mid 30's and I just dca this month's saving into my regular Vanguard index fund today. The current turmoil hasn't affected our family much since we were already LBYM.

 

[Lusitan]

Have been and will remain a LBYM family. Will continue investing per our asset allocation, heavily weighted toward stocks at this age.

Unlike the horror stories I'm reading of pre-retirees with high stock allocations, we will be moving to a more conservative portfolio as we get older. It's really just common sense, but it seems to be in short supply in this country.

 

[maddythebeagle]

Unlike the horror stories I'm reading of pre-retirees with high stock allocations, we will be moving to a more conservative portfolio as we get older. It's really just common sense, but it seems to be in short supply in this country.

It appears that a few posters on these boards as well.... OP, I think it comes down to simply this....if you have more savings years ahead of you, then the recent stock market panic shouldnt bother you....If anything though, I think it points to always wanting to have a nice wad of cash for opportunities....

 

[FUEGO]

Depends on the outcome. Market keeps dropping and stays down to flat for the next few years - it may have an impact. Market recovers within 6 months to a year and the economy is great overall, not much of an impact, and we are off to the races once again.

I think a severe downturn in the economy will have a much larger impact than downturns in the stock market for 20-somethings. Not being able to find a job to support their spending habits (and having the credit spigots shut off) will radically change many's lifestyles. Most 20-somethings don't even know what a 401k is, and if they do, they probably have very little money in their to lose.

 

[lucija]

I don’t foresee any major outlook change here… we are and always have been an LYBM family.

Life was quite good in the last 30 years or so and in many ways I think we’re in a much better position than folks in their late 40ies. We have been warned fairly early in our working life that one should:
(1)not blindly trust in existence of a plentiful and available SS,
(2)not blindly trusts a company to provide generous pensions,
(3)long/brutal market downturns do and will indeed happen (edit - this one may or may not be one of those),
(4)never adopt a lifestyle where more is spent than made (and count on credit to cover the rest)

There is no reason to think we, as a generation, cannot learn and benefit from recent lessons.

 

[Lusitan]

It appears that a few posters on these boards as well.... OP, I think it comes down to simply this....if you have more savings years ahead of you, then the recent stock market panic shouldnt bother you....If anything though, I think it points to always wanting to have a nice wad of cash for opportunities....

Just want to make sure I make clear that I'm not talking about people on these boards.

Frankly, anyone on these boards in the pre-retiree phase with a high stock allocation is really in a pre-early-retiree phase.

It's one thing to be aiming for an early retirement, and to be willing to take the larger equity position (and risks) that come with that goal, understanding that your plans for an early retirement may not pan out as you'd hoped.

It's something very different to be in or approaching traditional retirement with a high-equity portfolio that has just gone up in smoke. Those are the stories I'm reading about in the news.

 

[Rich_by_the_Bay]

Taxes, social security, and Medicare will all be higher for my 30-something kids than it was for us.

 

[Moemg]

My 31 year old daughter should be crying since her inheritance is slowly disappearing . Hopefully they'll make up for it by regular contributions to their Roth.

 

[Gardnr]

I'd been thinking about this myself and what the effects will be. I think there will be a lot of people who will shun the idea of investing in stocks for quite a while, especially if we get a long period of a stagnant, sideways market. They feel burned by this experience and don't trust Wall Street. We're hearing a lot of that already. They're looking at the flat to down 10 yr returns and thinking, "why take the risks for that?" That could end up being a negative feedback loop and help reinforce the stagnant market.

I really think that will mostly occur in those in their 40s, 50, and maybe 60s. The younger crowd haven't invested enough for this to be a significant emotional event. That's obviously a generalization and not true across the board, especially for those who frequent this forum.

With that all said it's very hard to predict these kinds of things in a global market. It's just so big and dynamic and very hard to accurately forecast how everybody will react. I'm hopeful that the ever rising global markets (developing economies) will lift our boat. Also maybe we'll develop a more fundamentally sound economy with a better savings rate (and less debt driven "empty" spending) and that capital will power the markets.

Time will tell!

 

[Frugality_of_Apathy]

The effect affecting me is a desire to gamble. At least those are games with known odds rather than something economists pretend to understand but really they have no predictive power.

That said, after my 10 month hiatus I've decided to start putting money into my 401K again and gamble on the market nudging it's way back up in the coming months.

 

[ats5g]

Perhaps people will start realizing that stocks will not always beat more conservative investments even over long periods of time.

 

[donheff]

Young folks have the advantage of time to find out if "it is different this time." If the market turns back up and long term trends assert themselves per usual it should convince them that the time tested investment principles are worth following. If we never recover they (and us oldsters) get to scratch our heads and think about what to do together.

 

[plex]

Perhaps people will start realizing that stocks will not always beat more conservative investments even over long periods of time.

Pretty unlikely, they never have before (in the long term), I would not be betting the farm on it, especially if you have a very long term investing horizon.

 

[unclemick]

Let's hope they are not as dumb as I was - after the 73/74 meltdown - I had a very diverse 'in my mind - Harry Browne type portfolio' aka slice and dice - plus a silly high mpg Toyota Corolla Hatchback. Plus timberland, 10% stake in a patented gold mine. Paid a lot for my 'education.'

Luckily - by 77 my 401 k had S&P Index 500 and I had a 68 Camaro SS with big wide rubber burning tires which made me feel better once I found a place that would sell me gas on a regular basis.

Alas - hindsight being 20/20 if I'd only owned a crystal ball to see I should have owned everything in 100% 500 Index stock - I'd be in the Bahamas instead of Kansas City.

heh heh heh - oh well . Let's once more charge into the future looking in the rear view mirror. .

 

[armor99]

I'm curious what the long-term impact of the market's turmoil will be on the 25-35 year olds out there that are starting to establish themselves in their careers and generate real income. Will we stop buying (or at least cut back) equities and shift to bonds? Or take advantage of it as an opportunity to load up on more shares? Will we pay more attention to their monthly expenses and stop buying so much junk? Or decide that saving is a losing game and figure they might as well live for the moment and splurge? Will they focus on paying down debt (credit card, mortgage, student loans) before investing for retirement?

Personally, I'm a budget-minded, debt-averse, conservative allocation type of person. But I was already this way before the market fell into a death spiral.

Hi soupcan!.. I am at the upper limit of that range at 35. I have mentioned this before, and I mean it seriously. The single thing I worry about the most is what happens when all of the baby boomers suddenly realize they are just "not going to make it" financially. People that in their lives did not plan for retirement, or thought their children, their former employer, or the govt was going to take care of them later in life, and so did not plan adequately. These people in typical fashion will start to panic. They will want money that they feel "entitiled to", and will not care much about where that money will come from. The govt. has just leveraged all of the citizens into a 700 Billion dollar check to pay. But the senior citizens will still scream for the govt to get them more money.
So what does this mean for me and for you, and millions of younger people now working in the US? Expect to have ALL of your earnings under future assault. Taxes will go up, SS will almost certainly dissappear as a benefit for you (but we will have to keep paying for others). Currently a 401k is one of the most threat proof assets you can have. In some states 401k's cannot be touched even through financial prosecution. But do NOT be surprised if at some point in the future the govt tries to reverse their stance on tax deferment for these accounts, or through some other legal maneuvering, tries to take those assets away from you to placate masses of the elderly that are screaming to be paid, and not caring where the money comes from. I will be watching for this trend VERY carefully in the comming years and attempt to remove my money from the system if possible before hand.

 

[FIREd]

I'm curious what the long-term impact of the market's turmoil will be on the 25-35 year olds out there that are starting to establish themselves in their careers and generate real income. Will we stop buying (or at least cut back) equities and shift to bonds? Or take advantage of it as an opportunity to load up on more shares? Will we pay more attention to their monthly expenses and stop buying so much junk? Or decide that saving is a losing game and figure they might as well live for the moment and splurge? Will they focus on paying down debt (credit card, mortgage, student loans) before investing for retirement?

Personally, I'm a budget-minded, debt-averse, conservative allocation type of person. But I was already this way before the market fell into a death spiral.

I am 34 and if there is one thing I am more certain about than ever is that saving is not a losing game. If anything, it looks more and more probable that I will have to save my way to retirement. With stock and bond returns projected to be below par going forward, I think it is possible that, by the time I retire, the majority of the money in my retirement accounts will have come from savings and not from stock/bond market gains.

I have yet to be convinced about the benefits of the stock market (I started investing in 2000 and, as of tonight, still haven't made a profit in 8 years). But I will give it the benefit of the doubt and time. On the other hand, I have been known to be conservative with my money and I have always kept a fairly high percentage of my portfolio in bonds and cash (35%). This latest crisis is unlikely to make me change my AA one way or the other.

As for paying attention to my monthly expenses, well I have always done it and it won't change. My wife and I have always lived below our means and saved a good chunk of our income. Our spending pattern probably won't change much either. I remember my parents tightening their belts during recessions in the 70's and 80's and I tend to do the same. I guess it's second nature for me. This year our expenses are down 10-15% compared to last year. But I doubt that the current crisis will have a lasting impact on our spending. As soon as we emerge from the current recession, we will probably go back to spending our money more freely. When the times are good I don't mind "laissez les bons temps rouler"...

 

[wildcat]

Personally, I don't mind this drop. I think it might give us a chance to earn some good returns at the right time in our lives.

We have probably on avg 20-30 years to make this money back.

I would guess most people our age - not on this board - will see this as another reason not to invest in stocks. We have to have some people pay our SS checks so root 'em on.....

 

[Canadian Grunt]

Here are my points.

1. If we carry too much debt we can't react to market and economic events.

2. This market turmoil was a great buying opportunity and it allowed me to double up on all the ETF's I thought were cheap. I am now 100% stocks.

3. Carrying bonds until market corrections is a great way of having the ability to go all in on corrections. But you have to believe in the markets! I saw a lot of fear out there, and plenty of irrational selling.

4. Buy and hold is not a good strategy. If I had not sucked it up and liquidated bonds to buy cheap stocks I would still be down quite a bit. After one day I am back in the black after a 1500 point TSX rally.

 

[Canadian Grunt]

I am 34 and if there is one thing I am more certain about than ever is that saving is not a losing game. If anything, it looks more and more probable that I will have to save my way to retirement. With stock and bond returns projected to be below par going forward, I think it is possible that, by the time I retire, the majority of the money in my retirement accounts will have come from savings and not from stock/bond market gains.

I have yet to be convinced about the benefits of the stock market (I started investing in 2000 and, as of tonight, still haven't made a profit in 8 years). But I will give it the benefit of the doubt and time. On the other hand, I have been known to be conservative with my money and I have always kept a fairly high percentage of my portfolio in bonds and cash (35%). This latest crisis is unlikely to make me change my AA one way or the other.

As for paying attention to my monthly expenses, well I have always done it and it won't change. My wife and I have always lived below our means and saved a good chunk of our income. Our spending pattern probably won't change much either. I remember my parents tightening their belts during recessions in the 70's and 80's and I tend to do the same. I guess it's second nature for me. This year our expenses are down 10-15% compared to last year. But I doubt that the current crisis will have a lasting impact on our spending. As soon as we emerge from the current recession, we will probably go back to spending our money more freely. When the times are good I don't mind "laissez les bons temps rouler"...

See my post regarding my use of bonds, just above this one.

 

[FIREd]

See my post regarding my use of bonds, just above this one.

I have been rebalancing on the way down too, using part of my cash/bond position to buy cheap equities (see my post here: http://www.early-retirement.org/forums/f44/did-anyone-buy-this-week-39653-2.html). I still have some dry powder (and I think I will have plenty of opportunities to use it in the next few months), but there is no way I am going 100% equities for one good reason: last month, in order to keep a 1-year emergency fund, I had to keep at least 15% of my portfolio in cash / safe bonds. After this month's drop, I now need to keep 18% of my portfolio in cash / safe bonds. If you feel fine with all your money in the stock market, with no emergency fund and no back stop, good for you! Obviously each situation is different. But I don't need stellar returns on my money to retire (6-7% annual will suffice), so I am not going to bet the farm on the stock market.

 

[ziggy29]

Well, there's good news and bad news in my opinion.

We'll get the bad out of the way first. There is no question in my mind that economically and demographically, the cards are stacked against younger generations, and the younger the generation, the more severe is the stacking. Debt will higher, taxes will be higher, retirement benefits are getting stingier, and one wonders if the growth that comes from equities can continue indefinitely given that growth requires more and more people and consumed resources. Their are far more headwinds for younger people in terms of retirement security, and the younger you get, the stiffer the headwind. I happen to believe we may be seeing the beginning of the end of retirement as an attainable middle class goal. The door seems to be closing ever so slowly.

Having said that, the good news is: That door isn't closed YET. Today's young generations enter the work force knowing the cards are way more stacked against them than it was for their parents and grandparents. They KNOW not to expect pensions and Social Security as we know it. They know they have to start investing for retirement on their own, and a lot of it, in order to get there with any decent likelihood.

The tendency over the last 30 years has steadily gone more toward a self-directed retirement rather than the assumption that employers and governments will provide it. And it's very important for 20-somethings today to recognize that and start getting ahead of the game. They are not and will not get the deal their parents and grandparents got. The sooner they accept that unfortunate reality, the better for themselves long term. It ain't fair what older generations did to today's youth, but wishing it weren't so won't make it go away.

 

[Nords]

I'm curious what the long-term impact of the market's turmoil will be on the 25-35 year olds out there that are starting to establish themselves in their careers and generate real income. Will we stop buying (or at least cut back) equities and shift to bonds? Or take advantage of it as an opportunity to load up on more shares? Will we pay more attention to their monthly expenses and stop buying so much junk? Or decide that saving is a losing game and figure they might as well live for the moment and splurge? Will they focus on paying down debt (credit card, mortgage, student loans) before investing for retirement?

We'll get the bad out of the way first. There is no question in my mind that economically and demographically, the cards are stacked against younger generations, and the younger the generation, the more severe is the stacking. Debt will higher, taxes will be higher, retirement benefits are getting stingier, and one wonders if the growth that comes from equities can continue indefinitely given that growth requires more and more people and consumed resources. Their are far more headwinds for younger people in terms of retirement security, and the younger you get, the stiffer the headwind. I happen to believe we may be seeing the beginning of the end of retirement as an attainable middle class goal. The door seems to be closing ever so slowly.
Having said that, the good news is: That door isn't closed YET. Today's young generations enter the work force knowing the cards are way more stacked against them than it was for their parents and grandparents. They KNOW not to expect pensions and Social Security as we know it. They know they have to start investing for retirement on their own, and a lot of it, in order to get there with any decent likelihood.
The tendency over the last 30 years has steadily gone more toward a self-directed retirement rather than the assumption that employers and governments will provide it. And it's very important for 20-somethings today to recognize that and start getting ahead of the game. They are not and will not get the deal their parents and grandparents got. The sooner they accept that unfortunate reality, the better for themselves long term. It ain't fair what older generations did to today's youth, but wishing it weren't so won't make it go away.

I think Socrates & Plato penned similar essays titled "... But this time it's really different!"

 

[Uncle Drew]

I am 34 and if there is one thing I am more certain about than ever is that saving is not a losing game. If anything, it looks more and more probable that I will have to save my way to retirement. With stock and bond returns projected to be below par going forward, I think it is possible that, by the time I retire, the majority of the money in my retirement accounts will have come from savings and not from stock/bond market gains.

I have yet to be convinced about the benefits of the stock market (I started investing in 2000 and, as of tonight, still haven't made a profit in 8 years). But I will give it the benefit of the doubt and time. On the other hand, I have been known to be conservative with my money and I have always kept a fairly high percentage of my portfolio in bonds and cash (35%). This latest crisis is unlikely to make me change my AA one way or the other.

As for paying attention to my monthly expenses, well I have always done it and it won't change. My wife and I have always lived below our means and saved a good chunk of our income. Our spending pattern probably won't change much either. I remember my parents tightening their belts during recessions in the 70's and 80's and I tend to do the same. I guess it's second nature for me. This year our expenses are down 10-15% compared to last year. But I doubt that the current crisis will have a lasting impact on our spending. As soon as we emerge from the current recession, we will probably go back to spending our money more freely. When the times are good I don't mind "laissez les bons temps rouler"...

Firedreamer, this sounds so much like my wife and I that it's scary. Cheers!