Volatility and Bear Markets (and Why Millennials Should LOVE Them!)
We’ve had some volatility in the markets recently and you may have been reading some negative reports which could be scaring you.
Don’t be scared. This is the greatest opportunity we have!
Volatility is simply how much the price of your investment fluctuates over time.
A bear market is defined as a drop in 20% from the peak price to the bottom price.
As Millennials, we haven’t experienced this for a long time. In fact, some of us may have actually never experienced a bear market.
The last one was in 2009 and the oldest millennial at that point was at 26. I was 23 and I was actually trading currencies and equities – and this was the greatest opportunity to build wealth that I’d ever seen.
A year later Sarah and I started our first private wealth management company because we saw it as an opportunity to stand out from the crowd when everyone else was being fearful and doing nothing.
So, let’s go through some facts.
#1 – Bear markets or corrections are going to be part of your investing life whether it’s in property or shares. It just happens in growth asset classes.
In the US, from 1900 to 2014 there were 32 bear markets. Statistically, they occur about one every three and a half years and last on an average of 367 days. The most recent US bear market occurred in 2007 to 2009 when the stock market dropped 57 percent over 17 months.
#2 – While bull markets have often lasted for multi-year periods, a significant portion of the gains have typically occurred during the early months of a bull market rally. This is why you need to be investing even when you’re scared.
Like Buffett says, be greedy when others are fearful.
I like to call it The Tuna Effect: always buy tuna when it’s on sale because you’re getting the same thing that you’ll want next month but for potentially half the price.
Sure, when the markets go down, the investments you have already accumulated may temporarily be less valuable. But the investments you’ll be buying the near-future have just become significantly cheaper, almost as if they’re on sale. This allows you to buy bigger stakes of those companies or properties for the same dollar amount.
Now, I agree, it’d be awesome if we were able to avoid the part of the price is going down but this is virtually impossible! Markets in the short term are unpredictable.
The great thing is that markets over the long term are very predictable.
Markets generally go up over the long term and if you actually look at any investment asset class over the long term, the line is always pointing upwards. This is how you can really capitalise on opportunities to accelerate your wealth creation.
The greatest way to reduce risk is to invest regularly and for the long term.
As Millennials, one thing we have is time. As long as you don’t need the funds in the short term, you don’t need to worry at all.
With a proper strategy you will have set funds aside for your short term needs anyway. So stress less, and just stop looking at your portfolio returns!
WE are actually hoping for a bear market soon because the earlier you can get a bear market, the better in your investing career. We then have the opportunity to capitalise on the eighth wonder of the world: compound interest.
So stop being fearful, start investing. There’s volatility but don’t be fearful.
The earlier you can start investing the greater the wealth you’ll be making in the long term.
Disclaimer: all information contained within this article is of a general nature. Do not rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.