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Why Millennials Should Root For A Market Crash
Let me ask you a couple of questions:
- Do you like to shop when things are full price or when they’re on sale?
- Are you more excited to hear that something you want is 50% off, or that it’s more expensive than it’s ever been?
I think we all know the answers. So why should we think differently when it comes to the stock market? Why do people buy when the market is high and sell just as it’s at its cheapest? Isn’t that the exact opposite of what we do in almost every other situation?
Look, the whole premise behind investing in the stock market is that over the long-term you’ll get a better return than anywhere else. That certainly isn’t guaranteed (nothing in investing ever is), but it’s been proven true again and again throughout history.
And if you don’t believe it to be true, then I don’t know what to tell you. You probably shouldn’t be investing.
But let’s make the assumption that yes, stocks will give you a positive return over the long-term. Then what that means is that, by definition, a market crash is just a temporary blip on the radar. It’s no more worrisome than a rainy summer day. Sure, the other days are more fun. But rain is part of the deal. And it’s actually those rainy days that produce all the beautiful green things we enjoy on the sunny days.
The rain might not be fun. But it’s welcome.
A market crash is no different. Just like the rainy day, it should be expected. We don’t know when it will come, but we do know that it will come.
But even more importantly, a market crash simply means that all those stocks are on sale. The bigger the crash, the bigger the sale.
Sure our accounts will look bad in the short run, but we already know that they’ll recover. In the meantime, the money we put in during the crash buys more shares at a lower price. It’s like getting two shirts for the price of one. A TV marked down 40%.
The companies that make up the stock market are basically exactly the same as they were before the crash, it’s just that now they’re cheaper.
We get to buy them on sale.
Time is your good friend
And because we bought them for less, those shares should give us an even better return over the long-term than all the shares we buy during the normal times.
And because we’ve got decades of investing in front of us, we’ve got decades for those better returns to keep on compounding.
That’s powerful.
And that is exactly why millennials should be rooting for a market crash. More shares producing better returns for decades.
What’s not to like?
A word of warning
I need to be very clear about something here. I am NOT, in any way, advocating that you try and time the market.
Nobody knows when the market is at its peak. And nobody knows when it’s at its bottom. The people who try to guess are the ones who lose money and end up hating the stock market.
What we can do is automatically invest on a regular basis. Not only is it an automatic way to build wealth, but we’ll automatically buy some shares when the market crashes and they’re at their cheapest. We don’t have to guess. We’ll do it by default.
So what do you say? Are you scared of the next market crash or looking forward to it? I know my answer.
7 Responses
I started investing in 2009, talk about good timing. So much growth between then and now.
That was definitely some fortuitous timing!
Interesting perspective, Matt, though I’m not sure that I agree with you. I feel as though negative externalities, especially soaring unemployment rates (Millennial unemployment is what? 14%? And then there’s underemployment…) would do (and have done) more to hurt the Millennial generation than the possibility of buying cheap would help us.
Or, simpler: it’s cool when stocks are cheap, but if Millennials don’t have jobs, they’re not going to be in a position to invest regardless.
You make a great point Chris, and certainly a very relevant one these days. There are absolutely more factors to building wealth than being able to buy stocks on the cheap, and you’re right that a market crash can put people out of work and make it more difficult for them to invest.
But I would also argue that it’s possible, though certainly not easy or guaranteed, to position yourself so that your income is at least somewhat more recession-proof than the norm. There are plenty of techniques for developing unique skill sets, earning money on the side, creating undeniable value for your employer, etc., that would make you more immune to a market downturn than others. So there are certainly more variables at play than just what’s presented in this post, but I don’t think a market crash has to be a death knell for the prepared.
Oh, I definitely agree with you on that point, Matt. The best investment you can make is building your personal skills and network.
On that note, do you recommend that Millennials become educated, active investors? Or are you more of a fan of Warren Buffet’s “90% in a safe index fund and 10% in government bonds”?
I believe that everyone should become an educated investor, though I don’t think that’s the same thing as an active investor. I’m very much a proponent of index fund investing, not just because it’s simple but because it works. I don’t believe that there are any specific percentages to follow as I think those depend on circumstance and comfort level more than science. But if you’d like to know more about my personal investment plan, you can look here: http://momanddadmoney.com/my-personal-investment-plan/