When the Great Recession hit in 2008, many millennials not only saw their parents affected by the downturn (decline in investments, retirement portfolio or even job loss), but they themselves were entering a tough labor market in the years that followed. Not surprisingly, this “conditioned” millennials to become cautious when it comes to their investments and financial plans.
Fast forward to today – July 2019 marks the longest economic expansion on record in the United States, however, there have been several economic indicators that have spooked investors including whether the market is overvalued and the “trade war” concerns with China. While there are some legitimate concerns, the media is playing a large role in over-reporting on these fear factors and “scaring” many millennial investors into thinking a recession could happen in next 12-18 months. Unfortunately, in the television business, doom and gloom sells.
While it’s fair to be concerned about a possible market downturn, even if the media’s doom and gloom stories are 100 percent accurate, millennials generally should not be overly concerned about an impending recession when it comes to investing for their retirement because they have a long-term horizon. Downturns are a normal part of the economic cycle. A true market correction, which is defined as at least a 10 percent decline from highs, is experienced at least every few years, sometimes every other year.
While millennials shouldn’t need to be overly worried, there are steps they can take to be prepared and even take a strategic approach to investing if we do experience a recession. Here are three tips for the millennial investors:
Utilize savings accounts. It is important to have three – six months of expenses saved. Just in case you lose a job if the economy takes a dip, having these savings in place will help prevent you from worrying about your financial security or forcing you to tap into investment/retirement accounts to pay for everyday living expenses. Saving this much can seem overwhelming! Some tips:
- Pay yourself first. Set-up automatic withdrawals on paydays into a savings account.
- If you eliminate a bill by paying off a car or student loan, continue to “pay” that amount to your savings account each month.
- Consider ways to save on your current expenses such as shopping insurance or reducing the cable bill.
- Keep your emergency fund in a savings account designated for only that purpose. If you keep all your savings in one account, it is easier to dip into your emergency fund when tapping your savings for vacation or to make a large purchase.
Don’t adjust portfolios. The market moves in cycles and it’s good for millennials to periodically review their investments. However, don’t adjust a portfolio that was designed to meet your investment goals and risk tolerance to be more conservative solely due to market volatility. Given the amount of time millennials will have in the market before retirement, they have the ability to be more aggressive with their investment strategy as they may be able to recoup losses due to a market downturn in the long term.
Consider investing more. If the millennial investor has good cash flow, expenses are being met and has an emergency fund then a downturn can be a good time to consider investing more. While you shouldn’t try to “time the market,” millennials may be able to maximize the potential of their money by investing extra cash during a downturn with the aim of buying low and riding the potential market rebound to long-term growth. Start by looking at what you can add to your retirement accounts if you haven’t already maxed them out. If you are just starting out, online accounts are a suitable place to add funds to start accumulating wealth. However, if you find your accounts growing past $50,000, it may be wise to start talking to a wealth advisor to ensure you’re building a diversified and suitable portfolio.
Recession or not, planning your financial future can seem like a daunting task. Girard wealth advisors are here to help guide you through the process. Contact a Girard advisor to get a discussion started.
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