(Welcome to my fiftieth published post! It’s been a fairly short, but still wild ride. Hopefully, I can keep posting, entertaining and informing you. In honor of this celebration, I’ve tried to find some good news to blog about, not an easy task in the current economic climate. I think I’ve succeeded, at least for those of us in Generation Y.)
If you’re young and still working, you should be upbeat, if not cheering, about the current economic down turn. (Just don’t do it too near anyone over the age of fifty or so, or they might come after you with torches and pitchforks.)
Just in case you feel I’m alone in thinking this, note that Liz Weston of MSN Money has noted that those of us who are under 35 should be saying hurray to the meltdown. Now, there are some of us under 35 who have gotten caught in the crossfire of the economic meltdown and are currently un(der)employed. But even for us, there are advantages to this crisis; it’s been lowering the prices of stocks, for one.
Why is this a good thing? Well, if you’re young enough to have multiple decades of work ahead of you (a fun thought, I know, but stay with me), being able to buy stocks on the cheap with your earnings will be advantageous later, when the stock market recovers. Don’t believe me? Let’s take a look at a real example.
Let’s say you wanted to invest in the Vanguard 500 Index Fund (VFINX), the first index fund, and one of the most popular, to boot. If you had invested $3,000 in VFINX on March 19, 2008 to open the 500 Index, you would have paid $120.06 per share and bought 24.988 shares. If you invested that same amount yesterday, March 19, 2009, then your $3,000 would have purchased 41.305 shares at $72.63. A one year difference, but the same amount of money now buys about 60% more shares of the Index Fund.
Think of it as a buy one, get one half off sale; right now, you can buy more shares of the exact same funds that were available a year or two ago at much higher prices. Add in decades of time for the market to recover, and you have a perfect set up for building up financial assets at fire sale prices for years to come.
This isn’t an attempt to encourage market timing; I don’t know when the economy will recover. We might have months or even years of more financial pain before things get better, or we might already be starting to recover. We’ll only know further on down the road, when looking back at the current time frame. It’s much better to keep investing, and simply take advantage of the current decline in the market.
In any case, the long-term results for stock investments all but ensure that time and willingness to take some risk will pay off eventually. If you’re a member of Generation Y, you are experiencing one of the best set of circumstances you and I will likely see grow our money over time, taking advantage of lower prices now to benefit as the economy recovers and stock prices begin to rise again. So, yes, if you’re young and investing regularly, now’s a time to celebrate!
Just… not in front of your parents.