I don’t mean to brag (boasting about money is always in poor taste), but I'm pretty comfortable financially. I’m a millennial with no debt (besides mortgages at competitive rates), a rental income property, a few passive income streams, and a healthy emergency fund.
First off a disclaimer: I am not allowed to give financial advice because I am not a certified financial advisor, so I’m merely sharing my personal perspective on the matter based on my own understanding of the stock market. Always seek qualified counsel for your own specific financial situation.
Should You Listen to Me about Finances?
Money and finance bores my husband so I manage our household finances. But I’m not even that financially sophisticated. I wouldn’t know how to tell if commodities are a good buy or how to employ options in order to successfully short/long stocks. I approach investing like the financially self-sufficient grandma who manages to leave behind money for her kids and grandkids.
Truth is, I know I’ll never be a millionaire trading the market, but if my household lost all our active income, we’d still be totally fine for a year. Funny enough, there are studies that show how women perform better than men as investors because we take a safer approach to our investing.
Women perform better than men as investors because we take a safer approach to our investing.
Still, if my personal anecdotal success isn’t reassuring, I do have a degree in Economics which I paid for with a bunch of academic scholarships.
Now Is Probably the Best Time for Millennials To Enter the Market
Until recently, the market had been at a historical high. The cause for this high can be traced back to the 2008 financial meltdown. Due to the unprecedented nature of the 2008 crash (caused by high-risk financial derivatives like credit default swaps), monetary and fiscal policies were put in place to deal with the financial crisis.
Among these was the quantitative easing (QE) by the U.S. Federal Reserve, as well their steep cuts to interest rates. It worked to an extent, as seen by the unprecedented rise of the stock market after these actions were taken.
Because quantitative easing (some say QE is like printing money) and low-interest rates also meant that money was “cheap” to rent, more people borrowed money and put it in the stock market. This flood of money in the stock market brought it to its record high, and stocks thus became overvalued.
The Current Market Correction Spells Good News for Long Term Investors
Basically, what this means is that the price of stocks became too expensive. While this was good news for those who were already in the market, it was unfortunate for younger people like millennials. During the crash in 2008, most of us were still poor high school or college students and had no money to invest. Whatever meager savings we managed to scrape and invest will have an almost negligible impact on our total wealth accumulation because the market was too overvalued.
If the research is accurate, then many millennials have been sitting on a lot of cash savings which could be invested.
So, in a way, this corrective downturn spells good news for us who are younger because now we are able to afford to enter the market. If the research is accurate, then many millennials have been sitting on a lot of liquidity (cash) and these cash saving would be better employed in the market instead of getting eaten away by the 2% annual inflation rate.
On top of that, if you are in a healthier financial position but have student loans, the Trump administration is also waiving interest on student loan debt until further notice because of the coronavirus crisis; so if you’ve been able to make your student loan payments on time, it might not be a bad idea for you to take the amount you would normally pay on interest and put it into the market, especially if it’s already an amortized loan.
The Industry You Might Want To Keep an Eye On
While, overall, the market is still somewhat overvalued despite the crash (believe it or not), one type of stock is currently selling at a cheaper price than normal due to multiple interconnected factors. They are the Oil Majors (Exxon Mobile, Royal Dutch Shell, Conoco Phillips, etc.).
Currently, two major oil producers, Russia and Saudi Arabia, are in a price war with each other, so they’re driving the oil prices down. You can think of the current drop in stock prices of the oil giants this way. Imagine two rival families who happen to own the largest production of local honey in your county. They’re the main producers of honey because only they have the land required for the necessary honey bee farms.
These two rival families have always been feuding with each other because they’re each other’s main competitor in the local honey market. Recently, they’ve decided to go into a price war, so they’ve cut the prices of their honey (by bottling more honey for selling) to compete at the market (or to spite each other, who knows?).
One type of stock is currently selling at a cheaper price than normal due to multiple interconnected factors: the Oil Majors.
As they slashed honey prices, they still need to bring their product to a market, so picture them bringing the massive amounts of the honey they’ve produced to a farmers market to be sold to consumers. Unfortunately, the farmer market where they were planning to sell their honey had an unexpected natural disaster, say a tornado. Fewer customers arrive at the market to purchase the honey because the bad weather kept them away.
How You Can Thrive in This Market Correction
The feuding families are Russia and Saudi Arabia. The natural disaster is the coronavirus crisis. The organic local honey is the oil and gas stocks. And the farmer’s market is the stock market. If you already happen to be at the farmers market when all these factors come together, you’re in for a treat because you get to scoop up this high-quality honey on the cheap.
So feel free to stock up because honey doesn’t go bad; similarly, companies like Exxon Mobile are solid blue-chip companies that probably won’t go bankrupt either. Blue-chip stocks are often great buys because they offer somewhat of a relatively safe harbor during economic catastrophes.
For a better and more in-depth analysis on investing in blue chips, you can read Joshua Kennon’s article from The Balance (a personal finance website). In it, he urged investors to remain calm and think in the long term when making decisions. As he stated, “Markets will collapse. You will see your holdings drop by substantial amounts no matter what you own. If anyone tells you otherwise, they are either a fool or trying to deceive you.”
No doubt this is a crisis that has never before been seen in our lifetime, but it is more so a medical and health crisis than it is a financial crisis. So may we weather this market collapse and come out financially stronger once it’s over. But most importantly, may you and your loved ones stay safe and healthy in this difficult season.