Younger Investors Faced With First Market Turbulence For First Time

If you started investing in 2009 or later, you have likely never faced a major downswing in the markets.

If you started investing in 2009 or later and have invested in North American markets, you have certainly never experienced a major downswing in the markets.

For the younger generations of investors, the market has been nothing but sunshine and roses. Nothing but markets that consistently trend higher, nothing but markets that consistently shake off bad news, nothing but positive economic news.

Things now seem to be changing, which has many asking the question - how will younger investors deal with their first real signs of turbulence and volatility? Will they double down and continue to invest, or will they bail?

On Friday, shares of Amazon.com plummeted 10% after they posted slower than expected sales growth for the quarter. Amazon, with its valuation in the many hundreds of billions of dollars, shed tens of billions of dollars in market capitalization on Friday.

For many, Amazon.com has been a solid foundation in their portfolios - the rapidly growing tech goliath that can seemingly do no wrong. Any pullbacks in Amazon were mercilessly bought up over the years - will this time be different?

Many younger investors have heavy concentrations of tech stocks in their portfolios - heavy on the likes of Amazon, Google and Facebook. This strategy has worked wonders over the past decade, though the receding tides of tech momentum has many younger investors trying to plug the leaks in their portfolios. It's great when tech stocks are going up 50% a year, but what happens when there is a meaningful pullback? Is there any incentive to buy the likes of Amazon now, with so many different headwinds currently swirling?

The US economy is still plugging away, growing at a rapid clip, though there are danger signs on the horizon, namely in the form of higher interest rates and potentially escalating trade wars.

For companies that have borrowed tremendous amounts of money to fund their growth, increasing interest rates is a big worry. In addition, interest rates on the rise means that the number of companies who will borrow money to pay out dividends or buy back shares (a common occurrence a few years ago) will dwindle rapidly.

The US economy is still growing, though there are signs that the mature bull market may be showing signs of breaking down.

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The S&P 500 is currently roughly 10% off of its highs, with tech stocks taking the brunt of the hit over the past month or so.

How will the younger generation reaction to this drop?

Filed under: General Knowledge