If you’re unfamiliar with the term, a bear market occurs when stock market indices fall by 20% or more from their most recent high for a prolonged period of time. With the S&P 500 dipping as low as 21% down from last year’s high over the past several weeks, we are officially in a bear market.
Such a downturn can feel stomach-churning for even the most seasoned of investors; nobody wants to feel like the market is consuming their money. This feeling is compounded (if you’ll excuse the pun) by some of the worst inflation seen in decades, pinching peoples’ existing savings and making it harder to afford basic living expenses.
Despite the queasiness that the market downturn might cause in younger investors and the difficulty that rising inflation poses to having excess money to invest, Gen Z is in a truly unique position to capitalize on the market downturn. For any Zoomer with some extra cash to drop on anything that isn’t housing or essential living expenses, the market is an excellent way to increase future wealth and provide for yourself in the long term.
Here are the advantages a Zoomer has in this bear market:
The market takes time to rebound
While many Zoomers are just getting started at investing in the stock market, other investors have less time to wait for the market to rebound. Gen Z has plenty of time to invest in the stock market and wait for the returns to match the market highs of the previous years.
Thankfully, the market often rebounds strongly during the following bull market, with an average first-year return of 38%. And while the bear market persists, new investors are able to purchase stocks for a significant discount compared to what they would have spent during the bull market.
The stock market is like a roller coaster; highs and lows are commonplace, and the fall to the bottom can be terrifying. Unlike roller coasters, however, the stock market’s historical average is rising. Patience is key in a beaten down market, and thankfully, this patience only has to last about a year on average. Investing your money in currently “discounted” stocks can provide you with substantial returns once the market rebounds.
Compounding is a Zoomer’s best friend
As Albert Einstein reportedly said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it”. Compounding returns, or “earning it,” occurs when your investment’s earnings are reinvested and continuously generate more earnings – – which makes invested money grow faster.
Here’s an example to break it down for you: If you properly invest $1,000 today and don’t touch your investment for another 50 years until you retire, your $1,000 could increase by more than 100 times (yes, you read that correctly). You could now potentially have over $100,000 just from your initial investment, if we assume an average 10% annual growth rate like the average annual S&P 500 growth rate from the last 50 years.
Although the stock market will not consistently grow at the average of 10% (in some years it will grow by much more, and in some years much less), this growth is something that long-term investors can regularly count on to produce returns for them as they stick through bear markets and momentary declines.
Zoomers can learn new tricks
Despite the tangible benefits of being able to wait for a market rebound and the power of compounding interest, the strongest tool at a Zoomer’s disposal is the ability to learn.
While many investors have ingrained emotional responses to market fluctuations, Zoomers have a lifetime of learning opportunities about how to invest sitting right in front of them. Successfully enduring painful losses early in an investing journey is one of the best learned behaviors for investors aiming at long-term gains. This can be the start of a lifetime of successful investing. And thanks to the internet, learning how to invest has never been easier.
All of these factors combine to mean that if you have the financial resources to be in the market, now is one of the best times in recent history to enter the market. While market fluctuations can be unnerving, getting into and staying in the market during a downturn while investing for the long term is an extremely successful investing model.