(Philip Genovese, Krystal Ebron, Mason Tyndall and Jacqueline Galindo)
If you are not familiar with the term, a bear market occurs when stock indices fall 20% or more from its most recent high over an extended period of time. With the S&P 500 down as much as 21% from last year’s high over the past few weeks, we are officially in a bear market.
Such a recession can make even the most seasoned investor’s stomach churn; no one wants to feel like the market is eating up their money. This sentiment is compounded (if you’ll excuse me for the pun) by one of the worst rates of inflation seen in decades, draining people’s existing savings and making it harder to pay for basic living expenses.
Despite the nausea that the market downturn might cause for younger investors and the difficulty that rising inflation poses in having excess money to invest, Generation Z is in a truly unique position to capitalize on the downturn in the market. For any Zoomer with some extra money to spend on anything other than housing or essential living expenses, the market is a great way to build future wealth and support yourself long-term.
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Image source: Getty Images.
These are the advantages that Zoomer has in this bear market:
The market takes time to recover
While many Zoomers are just starting to invest in the stock market, other investors have less time to wait for the market to recover. Gen Z has plenty of time to invest in the stock market and hope that returns will match the market highs of previous years.
Fortunately, the market often rallies strongly during the following bull market, with an average first-year return of 38%. And while the bear market persists, new investors can buy shares at a significant discount compared to what they would have spent during the bull market.
The stock market is like a roller coaster; ups and downs are common, and the drop to the bottom can be terrifying. However, unlike roller coasters, the historical average of the stock market is rising. Patience is key in a battered market, and fortunately, this patience only has to last about a year on average. Investing your money in currently “discounted” stocks can bring you substantial returns once the market recovers.
Compounding is Zoomer’s best friend
As Albert Einstein said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who does not understand it, pays it.” capitalization returnsor “earn it”, occurs when the earnings on your investment are reinvested and continually generate more earnings, causing the money invested to grow faster.
Here’s an example to break it down: If you correctly invest $1,000 today and don’t touch your investment for another 50 years until you retire, your $1,000 could grow by more than 100 times (yes, you read that correctly). Now you could potentially have over $100,000 from your initial investment alone, if we assume an average annual growth rate of 10% as the annual average S&P 500 growth rate for the past 50 years.
Although the stock market will not grow consistently by an average of 10% (in some years it will grow much more and in some years much less), this growth is something that long-term investors can regularly count on to produce returns for as long as they last. keep in bear markets and momentary falls.
Zoomers can learn new tricks
Despite the tangible benefits of being able to wait for a market rally and the power of compound interest, the most powerful tool at Zoomer’s disposal is the ability to learn.
While many investors have ingrained emotional responses to market fluctuations, Zoomers have a lifetime of learning opportunities about investing right in front of them. Successfully enduring painful losses early in an investment journey is one of the best-learned behaviors for investors seeking long-term gains. This may be the start of a lifetime of successful investing. And thanks to the Internet, learning to invest has never been easier.
All of these factors combine to mean that if you have the financial resources to be in the market, now is one of the best times in recent history to enter the market. While market fluctuations can be disconcerting, entering and staying in the market during a downturn while investing for the long term is an extremely successful investment model.
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