Back in 2008, the stock markets welcomed young investors of the millennial generation with a peak-to-trough decline of close to 50 per cent.
Lessons about the downside of stocks came regularly after that. The S&P/TSX composite index lost money in 2011, 2015, 2018 and 2022. Obscured by a quick rebound was the 37-per-cent peak-to-trough fall in stocks in the pandemic year of 2020. It’s too early to write off 2025, but the market decline triggered by the trade war has been painful.
Millennials, born between 1981 and 1996, have been beaten like a pinata by the stock markets. But stocks have also delivered for that generation. The story behind the numbers offers encouragement not only to millennials, but all investors worried about stock market declines.
Imagine a 25-year-old millennial investor put $10,000 on Jan. 2, 2008, into the iShares Core S&P/TSX Capped Composite Index ETF, a popular exchange-traded fund tracking the S&P/TSX composite index. By early March of 2009, the value of that investment had fallen to $5,830. Welcome to the stock market, kid.
Losing more than 40 per cent in more or less a year is a nasty outcome, but persistence would have paid off. Even with passing setbacks along the way, that ETF investment had grown to a little more than $18,000 in February of 2020.
The onset of the pandemic drove the value of this ETF holding back down below $12,000 in mid-March, 2020, but another rebound quickly took hold. By mid-February of this year, that initial $10,000 investment was worth a little more than $30,000.
And then, yet another reversal of fortune. Stock market reaction to the trade war slashed the value back to about $28,500. Has all this drama been worth it? The answer is yes. Despite the plunge in 2008 and other declines, the rate of return for that millennial investor was a cumulative 183 per cent. That works out to a little more than 6 per cent on an average annual basis, which is right in-line with what investors should expect from Canadian stocks over the long term.
The comparable return for a Canadian bond ETF over that same time frame was a cumulative 72 per cent. A money market ETF, a proxy for a safe and cash-like investment, would have delivered far less.
Millennials have had at least their fair share of economic adversity. Many of them entered the work force after the 2008-09 financial crisis and found only gig work available, not career-building full-time jobs. Home ownership became a challenge as house prices surged at levels well above income growth.
The stock market is different. Millennials have had a lot of setbacks in their investing experience, but none of them exceptional. In fact, one lesson that emerges from the stock declines is to buy when stocks are down.
If that 25-year-old we started out with had invested $10,000 when stocks were bottoming in late March, 2009, the value of that money as of mid-April would be more than $43,000. That’s a cumulative increase of 334 per cent.
Something else that stands out is the importance of not giving up, even when stocks have delivered crushing declines. Selling when stocks are down locks in losses, and it’s likely to leave you on the sidelines when the next rally starts. You take the blows when you stay invested, but you’re ringside for the rebound.
The hardest part of staying invested, especially for young people, is that every market decline looks uniquely dire. The financial crisis and the pandemic were unprecedented in the modern age of investing. As each unfolded, we had no way of knowing whether stocks could bounce back.
But they did, as they always have. A global financial meltdown couldn’t keep stocks low for long, and neither could a global pandemic that literally halted everyday life. The same will apply to the trade war, however long it lasts.
Although it’s hard to fathom at times, the natural state of stock markets is to make money for investors. Events like the trade war are just an interruption.
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