Monday, July 29, 2013

Investing/Stock Market: Perspectives For Generation Y

(Drivebycuriosity) - Generation Y is afraid of the stock market. Many people who are born in the 1980s and 1990s feel uncomfortable with stocks and are holding a lot of their money in cash, says a recent study (marketwatch). According to this study this group also is skeptical about their retirement even this is far away.

The sepsis against stocks is understandable after the stock market crashes in 2001 and 2008, but it is a great mistake. Generation Y has a lot of time! Those who are born in the 1980s and later have at least 30 years till the begin of their retirement and they could calculate with a remaining life span of around 50 years and more.

History shows that people who invest in stocks over those long periods got highly rewarded. The development of the Dow Jones - as a long-time gauge for the stock market - shows that crashes don´t matter much if you calculate with time periods of 30 years and more (

30 years ago, in the year 1983, the Dow was around 1,200 points, since then the barometer climbed to 15,521 ( Hence a stock investment 30 years ago multiplied almost with the factor 13, a gain of around 1,200%, even including the crashes of this century. Other 30 year periods also brought solid gains. Even when someone was so unfortunate to invest shortly before the Wall Street crash of 1929 - as the Dow reached a temporary peak of 380 -, he almost could double this investment because 30 years later the Dow had climbed to 630 points.

Since its inauguration the Dow has been rising around 7% a year on average, rain or shine. Every crash and bear market (years of falling stock prices) have been erased.  If someone invests $1.000 with a yearly interest rate (stock market gain) of 7% his investment will climb in 30 years to $7.600 - thanks to the interest compound effect (calculator). There is no reason that the future will be different because of rising productivity (technological progress) and the catching-up process of the emerging markets.

Investors who buy regularly stocks for their retirement or to build wealth for the long term, maybe every month a certain part of their income, don´t have to worry about the short term fluctuations of the stock market. In this case they could buy at temporary highs, like 14.000 Dow points in October 2007, but also at temporary lows, like 6.600 Dow points in March 2009. Hence buying stocks regularly and consistently leads to average prices between the temporary extremes.

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