Personal Finance

Millenials Should Hope the Stock Market Falls

Many people would think this is a strange comment to make.  Why would anyone hope for the stock market to fall?  Surely we’d all be better off if the stock market was rising?  I can see why you would think this considering the way the media report on the stock market suggests anything other than a rising market is a disaster.  But not everyone should hope for a rising stock market.

Bull and bear markets are normal for any type of market, including the stock market.  We can’t avoid this, we all have to go through and experience these cycles.  Would you rather buy stocks and shares at their peak or at their low?  This is not a trick question, of course you would want to buy them at their low and sell as high as possible.

Don’t be afraid of a bear market

bull bear market

So as a millennial investing for retirement for the next 30 years, I hope to buy shares at their lowest over the next  couple of decades and watch them soar prior to retirement.  Of course you can’t time the market, so take advantage of pound cost averaging and by investing regularly each month.  This would mean I can purchase a greater number of shares with less money and sell them at a greater price during retirement.  Providing me with a larger pension and therefore a better quality of life.

The state pension is age is continuously increasing, according to current plans I will not receive my state pension until I reach the age of 68.  I have no intention of relying on the state pension since I plan on retiring way before I reach 68 years of age.  So for me, my own retirement resources are even more important.  The more the stock market works in my favour, the earlier I can retire.  For all I know the state pension may reduce over time and possibly not exist by the time I come to retire.

Still not convinced?  Here is an excerpt from Warrant Buffett’s 1997 Berkshire Hathaway letter:

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

 So if you are in your 20s or 30s and intend to invest for the long term, you should be praying for a long bear run.

 On the other hand, those nearing retirement should be hoping for the exact opposite.  A long bull market will increase their retirement fund and provide a better quality of life as they are able to sell their shares at a higher price.

A £100,000 investment in a FTSE 100 tracker in 2009 was worth a massive £221,370 only eight years later (The Telegraph).  And the stock market has continued to rise ever since.

No one can say what the future holds and where the stock market will be in the future.  All we know is that all generations cannot benefit from the stock market at the same time.  It will either benefit one generation or the other.

6 thoughts on “Millenials Should Hope the Stock Market Falls

  1. That’s so true! The stock market is breaking through all-time highs at the moment and at some point there will have to be a correction. It’s just not sustainable at the current rate. Once that correction occurs, it’ll be the best time to pick up great companies at the lowest possible price. In effect, stocks go on sale!

    Liked by 1 person

    1. I think that’s why a lot of people don’t invest, it’s the fear of the unknown which is totally understandable. I plan on doing a post on the basics of investing.

      Like

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