Why selfish young investors should cheer for a lost decade
I’m not saying that I’m cheering for the entire US market to come crashing down, or that I want Canada to turn into Greece 2.0, but if I examine the world’s economies from a purely selfish financial perspective, I could do with one of these “lost decades” I keep hearing about. For those of you that actually have lives and don’t read financial columns every day, the term lost decade has become common investing parlance for ten years without seeing major gains in the stock market.
So why would I cheer for crappy markets? Well, as long as you ignore the fact that more people will have to work longer to fund their retirements, and likely fewer people will have jobs, a down economy for another 10 years or so would be a boon to my eventual retirement portfolio.
Run for the hills – it’s another financial metaphor!
The rationale behind that statement is that if the markets stay nice and panicked by horror-filled statements such as “Fiscal Cliff” and “Debt Contagion” I will be able to buy more and more assets with increasing earning power over my early working life. Right now, I am investing only a few thousand dollars a year, even though this represents a substantial portion of my take-home pay (one could argue that the automatic sizeable contribution I make to by teacher’s pension fund is also a form of investing, but it is sort of irrelevant to this sort of argument).
If I can continue to contribute this percentage as my income increases, I should be able to buy up larger and larger amounts of assets. All other things being equal, I’d like to get more assets for my money than less right? With my significant other entering the working world next year (yes, we’re set to become one of those annoying teacher-teacher couples) I am salivating at the long-term returns we will get since so many investors are afraid of equities right now (especially the ones that don’t get the magical “dividend all-star” status).
Businesses will continue to make money
I have no real fear that the markets will stay down forever. Businesses will find a way to make profits. The world is developing a middle class that could theoretically power growth for international companies on a scale that we have never seen before. I’m not worried about businesses continuing to innovate, get more efficient, make more money, and consequently get more valuable over the long-term. So if that assumption is the basis I’m working off of, then doesn’t it make sense that I’m relatively happy about buying these companies (through broad-based ETFs of course) for cheap today? Warren Buffett is famous for talking about selling when others are greedy, and buying when they’re scared. As long as I keep hearing fear-mongering headlines being pushed by the media that has to be a good sign right?
It’s nothing personal
Sorry to all of the people out there who need the stock market returns RIGHT NOW. This article probably wasn’t your thing. On the bright side, you had the opportunity to invest through your share of rough times and reap the benefits right? Is anyone else out there with a long investment horizon cheering about how long equities might stay beaten up for? I’m to the point where I love watching stock market days go down because I think about how much further my next investment will stretch relative to if we were in a bull market.
I feel the exact same way. We both have the selfish gene then :).
There was an interesting investing phrase I just recently heard that made a lot of sense: “Buy low and sell high!”
Anyone else heard it? Quite a concept!
Not on the stock market, but what you’re saying can also somewhat be related to the housing market. People are so panicked that everything’s going to come crashing down around us, while overlooking the fact that we NEED to have our values drop some – it’s a correction of the market, not a failing of it. Some may be hurt in the short term yes, but it’s really for the benefit of us all. I can see your point about the same thing on the stock market. Thanks so much for the interesting post!
It’s all relative, and a down economy this decade means future decades will be higher growth.
It’s not selfish. It’s the realization the stock market is a long horizon investment form. That means some years/periods will be low and others will be high. Buying during the low years and selling during the high years is where the money is to be made. That premis seems to be forgotten during the last 5 years of this market downturn. It will go up again. Nothing – good or bad – is forever.
Cheers to another financial implosion!