Interactive Investor

A young investor’s first experience of stock market volatility

9th May 2022 11:57

Dinah Wolf from interactive investor

Young people who began investing after the pandemic crash have had it easy, but what do they think of their first brush with volatile markets? Our Gen Z columnist gives her view.   

It will likely be the first time that many of us young lot have seen a stock market correction, certainly in the past two years. We’re more used to markets flying high like a bunch of hot air balloons heading for stardom. But these balloons are slowly but surely starting to lose their steam.

To be brutally honest, we’ve had it too easy for far too long and we’re getting a taste of what it’s like to actually have to work for things. But for the past 10 years, some stocks (cough, cough US tech) have gone in one way only: up. It was the most epic bull run. And it just so happens that when things get hard in equity land, that’s when my Gen (hey, you guys!) strolls right in. Murphy’s law or whatever. And now we’ve fallen hard on our little faces. And we’ve come to know that markets can in fact go the other way. But all hope is not lost.

Volatility (aka stomach-churning price swings) is the price we pay for long-term returns. It’s the risk involved with investing. See, if there was no risk, there’d be no reward to talk about. Take the Nasdaq: it was down as much as 10% since the beginning of February and early March (the war in Ukraine got everyone spooked) though look at its sneaky rebound: 12% worth of gains! Not a bad reward for holding on, eh, and many global stock markets are behaving as if the war never happened. If you had sold in the first few days of March, you’d be kicking yourself.

While market crashes are horrible and uncomfortable, least of all for those of us who have just begun investing, it’s a buying opportunity, or at least a reminder that regular investing can smooth out the volatility. If you can muster the courage to plunge into the waters when everyone else is running out, that’s when you’ll be rewarded. It also makes us appreciate the good times! And it’s a harsh reminder that nothing lasts forever. Many of my gen have jumped on to the bandwagon right when the Federal Reserve injected trillions of dollars into the system. Now things are reversing. But that doesn’t mean we have to run.

A crash like this recent one offers an opportunity to build your resilience, which gets formed during tough times, not when things are going swell, and to bulk up on your conviction. It’s easy to believe in your strategy (and your stocks) when things are heading north, but when the tide starts to turn, that’s when you’ll find out whether you had conviction, or not.

When I turn to my friends and outer circle of people around my age, they’re all saying different things. Some are bulking up on cryptos (bitcoin is a favourite) since they’re part of the camp that worry inflation is going to mess it all up since the Fed (and others) aren’t really prepared to do what it takes. These guys don’t trust the Fed to sort it out, nor do they think that things will ever be the way they were.

Then there are those who tell me they’re diversifying even more. They’re increasing exposure to Asia (a quiet winner from all this) while loading up on energy and commodities. Wise move indeed. But they agree with me that the bulk of our returns will not come from these (safe-ish) areas but rather from innovation, which is why they’re backing the metaverse, driverless cars and all kinds of other wonderful things.

We can all agree on one thing: our future is bright. But be sure that you’re prepared for the bad days (which, we’ve sadly got in spades now) as well as the good days. After all, no one wants to be caught in a downpour without an umbrella.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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