If there was an award for experiencing unprecedented events, millennials might win first place. Older millennials entered the workforce during the Great Recession and have since experienced a devastating pandemic and a spike in inflation not seen in 40 years. On top of that, the Federal Reserve’s moves to tame inflation sent the stock market into a tailspin.
The S&P 500 officially entered bear market territory on June 13, when it fell 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 is down 23.2% from its peak.
This series of unfortunate events is leading some younger investors to withdraw money from the stock market or close their brokerage accounts altogether. According to a recent survey by Ally Financial, nearly 20% of investors closed a brokerage or investment account in the past 12 months, and among them the largest group — more than 20% — were millennials and Generation Z.
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Seeing my retirement savings dwindle since the beginning of the year made me sick. But for me, closing the account is undesirable.
After you sell your investments, you have to decide when you will return. And timing for a market turnaround is tough, 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 take advantage of dollar cost averaging, buying more stocks when prices are lower.
Market history 101. Investing should be viewed with a goal in mind. If your goal is a secure and relaxing retirement, keep in mind that for most of us, that’s 30 years or more. If you withdraw money from the market or close your account now, you will miss out on the reward of the market recovery.
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 outlast the bad: the average bull market lasts 2.7 years. If these averages hold, we have many more market crashes and market rallies to endure 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, stocks of large companies in the S&P 500 returned an average of 10.5% annually from 1926 to 2021. For those rusty on 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 he coined Kiplinger’s Investing for Profit editor Jeff Kosnett: In any news-driven market crisis, wait until the third business day after the news before trading stocks, funds, gold – anything. After the three-day break, if you’re still tempted to do something, load up on quality dividend-paying stocks like those in Kiplinger’s dividend 15. This strategy is known as “buying on the dip”, which means you buy good stocks that have fallen sharply, with the expectation that they will bounce back. And that means better gains for the future.