Though it has been more than a decade, few of us have forgotten the start of the Great Recession.
After all, 2007 marked the beginning of a very tumultuous financial period. The real estate bubble burst, retirement accounts bottomed out, and many businesses closed their doors forever.
For some opportunistic investors who made wise choices, however, fortunes were made during that time. And with a brand new recession knocking at our doorstep, after a decade of surging market growth, a whole new set of optimistic investors are hoping to turn the next few years into their own season of growth.
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What’s Happening (and Why)
While a recession has been predicted for some time, the last few months have made it feel a bit more imminent. And because of this, it seems that many young adults are feeling encouraged to begin their investment journey.
It could be teleworking and a sudden influx of free time or just the sense of urgency prompted by economic uncertainty–new millennial and Gen Z investors have been sprouting up in surprising numbers these last few weeks. Online brokerages are seeing new accounts opening at record speed, and there’s no sign of this stopping soon.
As evidence: Charles Schwab’s brokerage had more than 609,000 brand new accounts opened in the first quarter of 2020 alone. During this time, the brokerage also saw 27 of the company’s 30 highest-trade days in its entire history. And for March alone, the brokerage saw a 217% year-over-year increase in daily average trades.
Even mobile investment apps have seen a sudden growth since the coronavirus began. Robinhood, for instance, gained 3,000,000 new users this quarter.
Is This a Good Thing?
Freshman investors have taken the recent economic instability as an opportunity to jump in the water. Many have used their new investment accounts to “buy the dip,” and if they jumped in at the right time (like on March 23, when the market hit its lowest point in nearly three years), they have probably done pretty well and seen notable growth.
It’s important to remember that only weeks have passed, though, and things are very likely to change. Yes, the market saw a (fairly quick) rebound but looking at our current economic reality, it’s hard to know what the next few months–and perhaps even years–will hold.
Economists around the world have been predicting a recession for quite some time. Thanks to the coronavirus pandemic, however, and its impact on business, unemployment, and market confidence, it’s happening even sooner than expected. In fact, it’s already here.
It’s impossible to know just how long-lasting and profound the recession will be. However, it’s likely that a recession, on top of the existing financial struggles already being faced, will be enough to bankrupt many companies.
Acknowledging this inevitability may make some new investors take pause, and even rethink their strategy.
Young Investors Are More Vulnerable
Millennials and young Gen Zers have the chance to transform an economic downturn into a wealth-building opportunity–but can they really afford to do so?
This younger generation already maintains a very delicate savings balance. They began their careers on the eve of the last recession, and many remain saddled with student loan debt. As a result, according to a recent Apartment List study, only about 13% of millennial renters would be able to afford a 20% down payment on a home in the next five years.
This means it’s even more important for these young investors to remain wise and careful, so that they don’t risk the savings gains they have made–and may need in the near future.
What to Do If You’re Getting the Itch to Invest Right Now
Though we are in a time of uncertainty, you may also be feeling driven to begin investing or even double down on your existing efforts. If you choose to move forward, though, there are a few rules you should follow.
Mind Your Budget
Taking advantage of low stock prices and downturns in the economy may very well be an opportunity for some of this generation’s investors to build their life’s fortune. However, it’s important that you don’t invest funds that you cannot otherwise afford to lose, no matter how great an opportunity may seem.
If you encounter an unexpected windfall or are able to earn extra cash through a side hustle, putting those funds toward new investment efforts may be a great idea. Just be sure that you don’t leave yourself (or your budget) in hot water as a result.
Staying the Usual Course May Be Enough
It can be tempting to buy specific stocks or time the market, especially with an upcoming recession. However, even sticking with your current investment plan–such as putting your money in mutual funds or distributing through a well-balanced portfolio–may still be very lucrative in the long term.
Keep up with your normal contributions, or create a saving/investing schedule that you can stick with for years to come. It may not be the most glamorous investment strategy but as they say, slow and steady wins the race.
Optimize Your Efforts
Anytime you can maximize your investments, you should do so.
This means that employer-sponsored retirement plans are often a great idea, especially for the tax advantages. If your employer offers to match a portion of your efforts, you should at least save enough to take full advantage of the free money.
Don’t Forget to Prepare for the Worst
Be sure that you have adequate savings set aside before you throw too much money into your investments.
While investing can be a great way to save for the future and build wealth, it is a long-term plan. You still need to ensure that you have a readily-accessible emergency fund and other liquid savings before you allocate funds to your newfound investment efforts.
Ready to start investing? Here are 6 Ways You Can Begin Investing with Just $100.
Ahead of us are months–or perhaps even years–of an inevitable financial downturn. But while that may spark fear or hesitance in some, other new investors are seeing this as a potential opportunity of their lifetime.
With many recognizing the importance of investing (and doing so early) for perhaps the first time, brokerages everywhere have seen unprecedented growth. And as long as these young adults remain both excited and cautious, we may see a brand new generation of successful investors.