If there’s one universal life lesson everyone should know of before embarking on a new adventure IRL (in real life) or through their handy dandy brokerage account, it’s that the good times sadly DO NOT last forever.
On a more positive note, the bad times don’t last forever either! Thankfully, all pain is temporary and makes us stronger in the long run.
So seize the day and embrace the pain even with your favorite risk assets that are currently plunging!
Fortunately, there’s always a bull market somewhere, and bear markets on average only last roughly a year so if you can stick it out in the long run and not make any abrupt moves such as selling your losses, you are in the best boat! I’m talking directly to you Gen Z!
As written in my earlier posts, who knows, we may very well be in a current recession and not even know it. With such a tight hot labor market with record low unemployment, the only cause for concern heading into Q4 and 2023 is inflation, slower growth, a stronger dollar weighing on prices, and lower savings rates. All in all, not the worst scenario as long as the Fed doesn’t screw it up. No pressure. Although no one wants a FFR of 4–4.15% and the Fed pushing the brakes, this is the only way the public market can rebound until inflation has peaked.
My generation, Gen Z, also known as the most socially conscious generation are future leaders, changemakers, and of course WILD investors!! If you haven’t boarded the investment train yet, it’s never too late to start, however, even as markets are dwindling due to looming recessionary fears, rate hikes, supply chain constraints, commodity shocks, ferocious volatility, and most notably, destructive inflation, only waiting for the good times to come is a selfish, suboptimal, and poor move all around.
No matter the market you’re waiting a turnaround for, you’re missing out on more by being on the sidelines than by sticking it out for the long run. No progress is linear.
Expected Entrance & Entangled Exit
Since my generation (18–25 yrs old) has never experienced a true bear market or deep recession before since March 2020’s brief correction, if they even were fast enough to catch a glimpse of it via Zoom school in their pjs, we are currently going through our first market cycle without soaring speculative frothy asset prices and overall, Gen Z isn’t faring well.
My generation isn’t so much sacred or fearful as they are impatient, a dangerous characteristic to embody as a long-term investor since short-term bets rarely return as high as long-term returns.
Sadly, I hear all the time business majors my age tout individual stocks and are only waiting for them to soar to the moon following their idol Elon. They complain if their favorite public equities aren’t trading at ~40x earnings, a rich delusional valuation in itself, investing in anything else is simply not worth it.
Clearly, their rates of financial literacy and expectations are inverted and score a negative grade. When one’s first investment experience is in the middle of a soaring record-high bull market where stocks are called ‘stonks’ and bankrupt retailers and car dealers are worth as high as the most valuable companies in the world who actually have steady and reliable profits, of course, anything below that performance will be considered dismal and suboptimal due to their disillusion, lack of investment expertise, and time on this planet!
Riding the waves is the way to go folks. Don’t hear it from me, hear it from those who haven’t closed their accounts since they’re instead compounding those returns over time.
Believe it or not, not everything goes up in value for no reason. Just because it sounds cool or seems like a fun bet like a struggling movie theater, AMC doesn’t mean it is a prized investment.
Taming your ego and becoming an emotionless investor will serve you well. And no, you cannot beat the Fed. Don’t even try.
With unrealistic lofty expectations and a lack of financial literacy, selling at the bottom of the market when most S&P companies on average have fallen by ~23% this year alone, is the worst move a youngster can make since they will eventually go up overtime. Now eventually sounds like forever to twenty-somethings but that’s what you sign up for. It isn’t a game, instead a journey.
If you’re having trouble dealing with this market, lock yourself out of your account and don’t pay attention to where your investments are swinging. It’s certainly better than closing your account altogether! As you get older, you don’t have this luxury as liquidity constraints and risks come into play.
I’ll say, the only upside to closing one’s brokerage account is that you don’t touch it! Less movements, trading, and short-term bets the better. Principle number one of investing. Leave it alone and let it grow. This doesn’t work in class but in your portfolio, it works wonders!
Once you’ve closed your account, at least you aren’t tempted to cause more damage to your net worth allocation and avoid day trading altogether. Plus, with all the time you now have now not refreshing your WallStreetBets Reddit feed and Robinhood holdings, you can now spend diligent time quizzing yourself on the most vital skill in life, personal finance.
All in all, my rule of thumb for anyone, young or old is to never invest more than 30% of your capital into one investment in order to sleep well at night and focus on limitless potential elsewhere such as in your career not in tracking indivual companies that deter away from fundamentals with unrealistic valuations. You’ll be surprised how much stress, financial loss, and annoyance we inflict on ourselves. Less = More folks! Make your life easier by doing less in your portfolio.
Go Ahead And Briefly Retire
A break from the markets may not be a bad thing and in fact beneficial for young frivolous investors who treat investing like a gamble instead of a long-term investment plan to help save their future selves.
Locking my money away and not touching it through a passive approach is also one of the reasons I feel really secure with private investments within private capital markets since real estate or private equity for example aren’t subject to daily market swings, unlike my favorite holding which can decline by 70% overnight!
Less time dabbling and tracking movements in the market, the better. Although no one becomes wealthy off of index funds or ETFs, always having a heavier allocation in passively managed funds with zero to single-digit expense ratios will always serve you better long-term mentally, emotionally, and financially than actively-managed mutual funds or individual stocks that rarely beat the market, let alone trail passively managed index funds in itself.
The Only Somewhat Good Reason for Closing The Account
It’s disappointing to hear 21% of Millennial and Gen Z investors tie too much of their lives on the line when it comes to their investments. This calls for a national emergency. More financial literacy education.
According to an Ally bank survey, although the number one reason 21% of these generations have closed their investment, trading, and or brokerage account in the past 12 months is due to inflationary fears, I really believe it is mainly due to the market volatility swings, heightened uncertainty, and dramatic difference in 2022’s public market performance compared to when the majority of Gen Z at least first started investing back in the banner years of 2020–2021. When you compare 2022 to any year past or present, you’ll feel less wealthy and proud no matter what. After all, comparison is truly the theft of joy in life.
Since public markets haven’t faired well due to higher inflationary fears this past year alone, luckily private capital markets such as private debt and equity, private capital, VC, GC, and real assets including real estate, farmland, infrastructure, natural resources, and artwork are finally becoming democratized on platforms designed for technologically savvy mobile-lover users such as retail traders, not just accredited investors with millions to splurge this time.
These may be the best outlets for investors of this kind and age who’ve already seized their accounts especially since private capital investments are tied up for at least a few years. No checking or updating your feed the better! A good punishment:) No wonder why social media is so lethal to this generation. They treat their investments the same way!
Although inflation is a distracting headwind, it makes me even more concerned that Gen Z and millennials, the youngest cohort of investors, are already closing their accounts due to any kind of fear they can pinpoint. There are a myriad of them from macro to microeconomic systematic headwins and risks that not being involved seems to be the safest yet in actuality, most dangerous move. Without any skin in the game, it’s almost impossible to bounce back, especially as risk assets are trading at 50–70% below their highs! These deals don’t come often.
Inflation is simply an easy excuse at this point. I doubt they’re cutting back on their avocado toasts and matchas. These past few years in the markets have just been so perfect that those my age are now skeptical about the future of investing! Too much of a good thing is bad after all.
This means they’re either getting into more debt and are cash-strapped, revenge spending all too much, and or not investing enough of their paycheck into their investment accounts, not paying themselves first.
These are the main reasons why I believe they must be closing accounts left and right, otherwise, they must not be able to handle the turmoil in the markets which is a fair case given this is their first time dealing with some uncertainty. I guess my generation has it all too good and needs to finally learn how to be a little more resilient! Alas, there’s no better test than these market conditions so I advise jumping right back in!
According to Lindsey Bell, Ally’s chief markets and money strategist, 38% of Millennial and Gen Z investors surveyed said: “They sold because they were afraid they wouldn’t be able to keep up with rising prices, and 31% said they sold to avoid losing more in today’s uncertain market.”
Clearly, there’s a lot my generation and the one above me have to learn, namely about investing as a long-game not short-term sprint. It shouldn’t be a quick decision and by making this poor judgment call today, they’re already setting themselves behind and in a worse position than previous generations by waiting on the sidelines.
Fewer decisions and moves especially in the markets, the better.
Jump back into the freezing waters and deal with the volatility. It’ll get warmer over time I promise.
It’s what you signed up for in the first place! Never bet against yourself.