Younger investors can profit from the crisis
Baby Boomer pain is Gen Y’s gain. The harrowing market slide that is a punch in the retirement-portfolio stomach for the 50+ crowd is actually great news for younger adults.
“If you are in your 20s and 30s you should be dancing in the streets right now,” says financial advisor Frank Armstrong, president of Investor Solutions in Coconut Grove, Florida. “This is just a tremendous time to be able to invest in stocks at sale prices. You’ve then got 30 years or more to leave the money alone. We don’t know what is going to happen over the next few months and years, but over decades we’re confident you are going to make money.”
The catch is that you need to invest now. To make out well in the future means scooping up stock shares today at those sale prices. But it seems that plenty of investors are doing just the opposite; choosing to reduce their investments in stocks and hide out in cash. What feels good today (lower risk in a volatile market) actually works against you over the long-term; stocks, not cash or bonds, offer the best shot at inflation-beating gains over the long term. There is no question that the markets may continue to falter in the coming months or even years, but when you are in your 20s or 30s that’s practically irrelevant. You are investing for 2040 or 2050, not 2011.
If you happen to be a parent (or grandparent) looking to help your grown child navigate these volatile times, go for the “you’ll thank me later for this” approach: any way you can impress on younger adults to keep (or start) investing in stocks right now is going to pay off for them decades for now. Send them over to this calculator and have them plug in how money invested today might grow at say a reasonable 7% or so annualized rate over the next few decades. (Yes, that’s reasonable. The long-term historical rate of return for stocks over the past eight decades is about 10%; and that return takes into account the severe buzz cut in the S&P 500 over the past 15 months or so.)
If you have some extra cash to help jumpstart a child or grandchild’s investing, you can gift them money to put into a Roth IRA. As long as a child/grandchild has earned income, the money for an IRA can come from any source.