Investing in the market during a recession, good for long term?

[bo_knows]

I'm 30, and I love to see the perspective of people on these forums.

My wife and I LBYM and save a good portion. We figure it will be probable to retire before 50, possibly sometime in our mid 40's at our current rate and reasonable expectations of returns.

I often hear people on these forums talk about how the 90s stock market was really good to them... and it makes me wonder: Younger people who are heavily investing in mutual funds right now (during a recession, with a possible "double-dip" coming with the collapse of the Euro), are they going to see some excellent recovery years in 5-10 years?

I suppose that anything is in the realm of possibility, but it's often odd to base your projections on past returns (firecalc) and/or a steady rate of return. I just wanted to hear peoples thoughts.

 

[W2R]

Younger people who are heavily investing in mutual funds right now (during a recession, with a possible "double-dip" coming with the collapse of the Euro), are they going to see some excellent recovery years in 5-10 years?

Just a minute while I consult my crystal ball....

 

[bo_knows]

Just a minute while I consult my crystal ball....

Yes yes, I know that it's an open-ended question. I don't want to get into "predicting" the future of the markets here.

I guess what I'm getting at is: Do people see this as a particularly good growth opportunity, comparative to a "normal" economic situation?

 

[REWahoo]

Yes yes, I know that it's an open-ended question. I don't want to get into "predicting" the future of the markets here.

I guess what I'm getting at is: Do people see this as a particularly good growth opportunity, comparative to a "normal" economic situation?

How can anyone answer this question without "predicting'" the future of the markets?

 

[W2R]

Yes yes, I know that it's an open-ended question. I don't want to get into "predicting" the future of the markets here.

I guess what I'm getting at is: Do people see this as a particularly good growth opportunity, comparative to a "normal" economic situation?

OK, so I guess your question is not WILL this be a good time to invest, but do people SEE it as a good time to invest.

Probably a lot depends on what your economic outlook is; will Greece and the European Union be able to pull out of their current economic problems? Will we? I am ever the optimist and think (but do not know) that this will probably happen.

To me, the best time to invest is when you are ready to do so. Market timing, even for big cycles and even when couched in esoteric analyses tends to be a lot like throwing dice.

 

[travelover]

I'd say stop worrying about the short term and invest for the long term.

 

[rescueme]

To me, the best time to invest is when you are ready to do so. Market timing, even for big cycles and even when couched in esoteric analyses tends to be a lot like throwing dice.

Completely agree on this comment.

While I/DW did well (with a couple of "glitches") during the 80-90's and was able to put a lot in the market in 2000-01 (after paying off our home in late 1999 - we did not buy into the tech bubble, but paid down our debts during those high-flying days), along with "harvesting our profits" in the mid/late-2000's, nobody knows what the future will bring - until it is the past.

IMHO, the most important thing you can do is (if you have the guts) to invest/save as much as you can. You don't have current risk (assuming you have a job, that covers your current expenses).

"Time" is both your friend, and also your enemy. Over the long term (I'm saying several decades), the market will have a positive return, be it a few or many percentage points. That will remain to be in the future. Heck, one of our main investments is for basic personal needs. With the increase of folks on this planet and the "conversion" of 2nd/3rd world countires to the "middle class", our "growth area" for the immediate future is toilet paper (think about that comment ).

There will always be growth, and opportunity for profit in certain (not all) areas. We've always invested in "what we use", and have done well.

Good luck to you, regardless of your path in life...

 

[bo_knows]

I'd say stop worrying about the short term and invest for the long term.

Sigh. I'm not worried about the short term.

I think this thread is a disaster. I will have to compose my thoughts in a different manner next time

 

[MichaelB]

The most important investment returns for a 30 year old will not result from his or her current portfolio but from regular and continued additions over then next 20 years.

 

[73ss454]

Since no one knows what the future will bring we can on base it on what has happened in the past. There will be plenty of bumps in the road but you have enough decades ahead of you to smooth them out.

 

[Animorph]

It's a better time to invest than in the past when prices were higher. I'm happy to invest when prices are low, though I've already hit this point before and I'm waiting for even lower prices now. They'll eventually go up. Wish I knew what the annualized gain over the next 30 years would be! But they will be (slightly) higher for you if you buy at cheaper prices.

 

[rescueme]

Wish I knew what the annualized gain over the next 30 years would be!

Heck - I wonder if I would be fortunate to live that long ....

BTW, I would be 94 ...

 

[haha]

I agree with you Bo that the river always changes, and basing plans on past performance may not be a good plan. It is however easy, and removes the anxiety of thinking and accepting the upsetting fundamental lack of knowledge.

My guess is that the '90s were a one time only phenomenon- in fact the history of US markets show what an outrageous social madness took over and propelled markets to previously unknown hights of valuation- maybe twice (by PE10) the '20s, the previous speculative high.

It was propelled by boomer money, and relative lack of investing skill and discrimination, as well as by cap-weighted investing methods, and belief in the boundless money-making possibilities of the internet and an interconnected world.

These giant booms IMO will happen in smaller, emerging markets, but not all likely in large mature markets.

IMO what we look forward to is volatility both up and down, and little real market-wide gains for a good long time. One way to gauge is to look at a society which had already been where we are going-Japan. One way to see Japan is as a demographic disaster, combined with very short-sighted economic and social policy responses- mainly kicking the can along. Any similarity to the US? It is often said that we accept immigration, so we will be different. A diffferent result, sure, but better- that remains to be seen. To me it appears that it would be hard to come up with a set of economic, financial, social and immigration policies worse than those of the US, if the goal is actual real growth.

Ha

 

[ShortInSeattle]

Sigh. I'm not worried about the short term.

I think this thread is a disaster. I will have to compose my thoughts in a different manner next time

I get what you are asking, and while I agree with that we can't predict the future it's something DH and I have talked about, and talked to our financial advisor about. We're 33 and 36.

Here are a few things that we've talked about:
- the market always has cycles of booms and busts, but the overall trend line has been positive. This could change or become flatter, but we don't see any reason to freak out yet.
- the market seems more volatile than it used to be, probably due to the global interdependence of the economy. It's no longer good enough to just worry about the US. Also, market cycles may be getting shorter.
- because we are younger, we have time to ride out this volatility and learn from it.
- keep in mind our predecessors didn't know they'd have a couple decades of steady growth. It's easy to project confidence into the rear view mirror.

All we can do is find the investments that have the right risk/reward profile for us, keep contributing, and watch and learn. Hopefully all will be OK and even if not we'll probably be better of than most for our efforts.

SIS

 

[ERD50]

I don't want to get into "predicting" the future of the markets here.

Well, I'll give you a prediction that I feel very confident in:

If you and your wife continue to LBYM and save a good portion, you'll be in far better shape than those who don't.

Not a whole lot you can do about the general economic trend. But I can tell you that that once-in-a-lifetime 90's bull market meant nothing to so many people, as they had no savings and/or no appetite for equity investing (those 'risky' stocks). They sat on the sidelines and watched it go by.

I think you'll do well.

-ERD50

 

[LOL!]

I think there is no better plan than to continue to invest. Whether one can retire at age 50 or not is probably not important. When you get to 50, you may see that you worked too long or that you need to keep working for a few more years. No big deal.

 

[obgyn65]

My answer to this question is "no". This financial crisis has been too significant. I don't think we will see the "go-go years" (like the internet or real estate bubble periods) again in our lifetimes.

I guess what I'm getting at is: Do people see this as a particularly good growth opportunity, comparative to a "normal" economic situation?

 

[Gumby]

It has been my experience over the years that the best results come from observing what course the majority is taking and then doing something different. For the past several years, we have seen strong outflows from equity mutual funds and inflows to bond funds. As you can see by this chart http://www.ritholtz.com/blog/wp-content/uploads/2012/04/mff04134052_big.gif, the peak outflows correspond with the low points in the market (i.e - the mass of people sold at precisely the wrong time). And this trend persists today even in the face of record low bond yields -- the so-called flight to safety. But how safe can it be to take a negative real return on your money? The world will end someday, but almost certainly not tomorrow, next week, next month or next year. Experience suggests that we will muddle through our current difficulties, the market will start to rise, and eventually people will wake up and once again start buying.

Right now, the average PE ratio for the S&P 500 is back to its lowest point during the 1990s. S&P 500 PE Ratio I think it is a good time to buy stocks, which is why I continue to do so every week. My only hope is that I'll be smart enough to see the next bubble and sell before it bursts.

 

[pb4uski]

My answer to this question is "no". This financial crisis has been too significant. I don't think we will see the "go-go years" (like the internet or real estate bubble periods) again in our lifetimes.

I'm not so sure whether there is/will be a "new normal". OTOH, there is a boatload of cash both in corporations and individuals' portfolios that is like a deer frozen in the headlights waiting to see if it is safe to deploy, which could result in a great rebound.

With respect to the OP, as others have said, if you continue to LBYM and invest regularly and prudently in low-cost funds, stay the course and don't make any dramatic changes in response to fear or greed, you will be at the head of the class no matter what happens.

 

[rodi]

My guess is that the '90s were a one time only phenomenon- in fact the history of US markets show what an outrageous social madness took over and propelled markets to previously unknown hights of valuation- maybe twice (by PE10) the '20s, the previous speculative high.

It was propelled by boomer money, and relative lack of investing skill and discrimination, as well as by cap-weighted investing methods, and belief in the boundless money-making possibilities of the internet and an interconnected world.

I agree with this. And would add it was fueled by joe six pack investing in their 401ks. From what I've read - the trend away from corporate pensions, replaced by 401ks was huge in the 90's. This drove more people into investing in the market then ever before.

 

[lrak]

The most important investment returns for a 30 year old will not result from his or her current portfolio but from regular and continued additions over then next 20 years.

Well yes for the 30 somethings TODAY, but that was not the case for many of the 60 somethings on the board.

I entered the workforce full time in 1999. I'm only 13.5 years into the 20 year run here but, but so far most people my have age gotten average bank interest and stock market returns of ~2% during their working years. If I contribute $16.5k 401k + $5k IRA into retirement accounts and get ~2% returns, my average returns will exceed my contributions once those accounts have grown to $1M. Given today's contribution limits and ~2% returns, it looks like it is going to take me till my early 50s to get to $1M into my retirement accounts.

On the other hand if I had entered into a 1979-1999 like economy where ~15% average stock market returns were common, my returns would exceed my contributions once the accounts grew to $150k. My bank interest would also be returning ~9% on average instead of ~0.9%. I'd also be likely to have a modest pension and retiree health benefits in my career path so I wouldn't need to have as large a nest egg.

I think the OP is thinking its not going to be as easy for our generation to retire early as the one before us. He is likely correct. I for one am not too worried about it. I've averaged healthy (for this economy) 1% annual raises over the last 5 years while college tuition has continued to go up ~7% a year. Since I have a 6 year old ($250-500k tuition?) and 1 year old ($350-700k tuition?), I figure I'll just win one big lotto jackpot (from one of the two lottery tickets I buy every year) and that should leave enough left over to cover early retirement too.

 

[rescueme]

I agree with this. And would add it was fueled by joe six pack investing in their 401ks. From what I've read - the trend away from corporate pensions, replaced by 401ks was huge in the 90's. This drove more people into investing in the market then ever before.

But didn't the companies that provided those pension plans invest in the market in order to meet their "promise" to the employees?

I see it more of a transfer of who was investing in the market, being transfered from the employer to the employee (with a bit of employer help by providing a match).

 

[pb4uski]

But didn't the companies that provided those pension plans invest in the market in order to meet their "promise" to the employees?

I see it more of a transfer of who was investing in the market, being transfered from the employer to the employee (with a bit of employer help by providing a match).

True, the principal effect was the transfer of investment risk from the employer (under defined benefit plans) to employees (under defined contribution plans like 401ks).

 

[eridanus]

Eh, what Gumby wrote. When Gen Y wakes up and decides to start investing, more money will be sent to 401ks (the Echo Boomers are about 80 million strong), especially when SS gets cut. When more Indians and Chinese earn more money, they'll invest.

Or we could see a "Japan" decade in the US, in which case it's wise to invest in emerging markets. If we have jobs.

 

[Milton]

I think this thread is a disaster.

Me too! ;-)