Are Millennials Financially Screwed?
November 12, 2015 6:00am by Barry Ritholtz
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In the short term, yes. In the only term, only if they want to be.
We moved passed peak productivity in the boomer generation a decade ago. Now the boomers are at peak wealth stage, so asset prices are high. That will likely change as those assets get sold to pay for retirement (individuals and pension funds).
So right now Millenials have high student loan debt that is preventing them buying what are probably over-priced homes, stocks, and bonds. As their debts get paid off, they will move into their own peak productivity period a decade or so from now. Asset (houses, stocks, bonds) prices will likely have lower valuations (inflation-adjusted prices lower) and their incomes will be rising as they move into the slots exited by boomers and Generation X.
I think we are in the equivalent of the end of the 1930s (minus double-digit unemployment) or the late 1970s (minus double-digit inflation). Those periods were followed by 30 years of growth and prosperity after another round or two of challenges. So I think the Millenials will be just fine 40 years from now, unless they decide to get greedy and screw things up..
Greedy…like the 20s, 70s or 90s, from a stock price perspective?
Each generation is increasingly myopic. Greed could arguably be viewed as the excessive risk in a given timeframe, i.e. short term return vs. long term viability?
More like greedy from an income/wealth inequality standpoint while ignoring Keynes and running large deficits to reduce tax burdens during boom periods .Unstable financial markets are an outcome of those policies, not a cause. Fighting voluntary unfunded wars (Vietnam, Iraq) is another way to create Minsky moments.
Get that Roth IRA open ! Try to fund the 1st year with an initial “large” sum and then contribute small and incrementally growing contributions years 2 – 11 ( slide 19 in link below, for example, shows $3800 total contributions after initial and incremental after 11 years). Along the way, invest in low expense small cap value universe * and bond ETF’s utilizing a robust, empirically tested tactical allocation model. Charts 5 + 6 shows graph and actuarial outcomes table of geometric compounding of contribution scenario described based on average 46 year historical rolling historical periods starting 1927.
Soon, we will roll out an app providing direction for young, self directed investors to use within low cost brokerage structure.
* small cap universe provides highest decile alpha according to Fama and French and a young worker has “time compounding” advantage on their side to maximize asset growth using tax deferral..
Link here: https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing
If we are looking at a situation where the next decade or more asset prices will be dropping (as boomers unload their assets to live in retirement), then putting money into retirement accounts would be about the worst thing they can do. Instead they should rent while they pay back all their student loans, then begin saving up for a 20% downpayment on a house.
Dollar cost averaging into tax-deferred accounts still works in that scenario as the best time to be buying is when the markets are dropping. But it should be balanced by continuing to pay off the debt and saving cash.
Competitive pole dancing? That’s a thing?