You Should Be Rooting for a Market Crash

As a Millennial myself, I bristle at most major media organizations talking out of both sides of their mouth.  At once there is the pity-party coverage about how bad we have it and also how we are entitled, inexperienced busy-bodies who are getting what's coming to us.  All of this generational strife is counterproductive and directs focus away from the fact that financial building blocks and financial literacy are out of reach for millions of Americans regardless of their age.  While luck always factors into outsized successes, consistency and discipline with healthy financial habits will yield the results that matter even for the unluckiest among us.  

The fact that the market’s ups and downs and other financial difficulties (like inflation) are also happening to older Americans and have been happening longer (since they are older) isn’t written about as much.  The stock market (and every market in history) has been growing and contracting without concern for who benefits and who gets hurt for as long as we’ve had markets to participate in.  Granted, some people handle it better or get luckier and vice versa, but we’re all in the game together counting victories and occasionally taking body blows.  

No one goes through these ups and downs alone.  We all have company during each of our “personal” recessions, crashes, and bear markets just as we always have company during expansions and bull markets no matter what age you are. Don’t let the internet hivemind bully you into thinking you’re the only one seeing your pandemic-fueled winnings evaporate or your dream job get delayed.  Realize that every recession and bear market is an opportunity to capture future gains and lay the foundation for future financial success when you act rationally and with a disciplined strategy that manages your risk.  

Anyone under the age of 40 might say “All those Boomers didn’t have to go through what I went through and they have the wealth to prove it”.  For the youngest Baby Boomers, who turned 20 in 1984, you might be right…they endured only two recessions (1990 and 2000) before the Great Financial Crisis in 2008.  However, for the oldest Baby Boomers (age 20 in 1966), you would be very wrong.  In fact, they endured six recessions before 2008 (1969, 1973, 1979, 1981, 1990, & 2000).  The 1970s and 1980s were not all free love and hair bands.  Those years were a pretty rough time culturally and financially for many Americans.  For those who took advantage of it, they were also a huge wealth-building opportunity. 

Despite what the “overnight-millionaire” coaching industry would have you believe, sustainable wealth is built brick by brick over decades.  Warren Buffet is famous for promoting strategies that will grow wealth slowly.  As much as we all would like to wake up tomorrow and be supremely wealthy, it doesn’t just happen without a lot of luck, perfect timing, and hard work.  Your best bet isn’t to try to find the best get-rich-quick scheme, it's to make a get-rich-eventually plan.  100% certainty in 20 years is a lot better than a 1% chance every year for 20 years.  

This is why you should be rooting for, hoping for, and cheering for a market crash.  Or at the very least, monotonous sideway action.  As frequent as market crashes may feel, they are not as common as they seem.  In fact, following 2008, and including the Pandemic, the market has performed spectacularly (+16% Compound Annual Growth Rate) in no small part due directly to the 2008 crash.  When the market does crash you can take that infrequent opportunity to make your retirement contributions or invest some savings at lower prices, and get better future returns. If you are in the accumulation phase of your life, volatility can be your best friend if you prepare correctly.  

What does this mean?  

It means mentally preparing yourself.  Every instance of a market correction brings you closer to your goals, not farther away.  As you buy assets at lower prices you are increasing the future returns of your portfolio. This can be scary and counter-intuitive when your asset balances are falling. But as they rise in the future (and they will) you will have laid a strong foundation for decades of growth.  

It also means financially preparing yourself.  Maintain a sustainable, repeatable asset allocation. Balance your portfolio for risk.  It’s easy to jump into risky investments when they are going up but it is hard to hold on when they are going down.  Rebalance when your target asset allocation deviates. And commit to an unwavering contribution strategy.  If you never rebalance at the top (or bottom) you’ll weaken your future gains.  If you can’t invest as much or more at the bottom as you did at the top, you’ll further weaken your future gains.  

Cultivate a long-term vision for financial success and commit to it.