Talking to people my own age; from friends to colleagues to those in my outer circles, the general mood ain’t great. We’re all feeling slightly disappointed, anxious and most likely worried about the current soggy state of affairs. We’re living in what seems like one of the toughest and most unprecedented times. Perhaps ever! We got smacked in the face (more like hit with a truck) with covid that changed everything only to find ourselves on the brink of a severe recession, or worse.
We feel like we graduated at the wrong time. And began investing at the wrong time. But I gotta say, this is nothing compared to millennials who graduated in ‘08 (crisis #1) only to find themselves stuck in a pandemic (crisis #2) when they should finally be buying those houses of thiers. Oh wait, – they can’t. Prices are too high. But we’ll get to that later!
While the job market is still ridiculously tight, cracks are starting to show. Layoffs are happening across the tech sector (it’s not just those unprofitable fintechs) and some of my friends are worried – including the ones not working in tech. One friend who works for a PR firm in the city said they’ve just gone and fired 2 new grads. She’s worried she’ll be next! So she’s pulling up her socks and putting in more hours.
There’s something in the air and it doesn’t feel good.
Inflation is stupidly high by anyone’s standards and 9.9% ain’t something to smile about (after having fallen ever-so-slightly from 10.1%). Though I suppose we should be glad we’re not in double-digit territory no more.
With all this inflation, our money has much less buying buyer so we have a situation where our wages are practically being swallowed by inflation though our government’s tax cuts (no comment from me here on this one!) will add a couple hundred quid in our pockets each year (well, from April technically) so there’s that. But overall, it’s grim out there.
Looking under the bonnet of why inflation’s gotten ahead of itself is soaring gas prices. So rising energy bills (along with everything else) is something we’ve gotta deal with. My friend signed a 6-month lease on her apartment in case energy bills soar even more she won’t be tied down there too long. Because if that happens, she’ll move back in with her folks. It hurts when so much of your salary goes to paying your electricity! That’s just sad.
We’re all feeling the pinch, whichever way you look at it.
And if rising inflation wasn’t enough to deal with, we’ve got rising interest rates that are the proverbial knights in shining armour (not) to save us from inflation.
So it’s not at all surprising that the stock market fell flat on its face this month. After all, they don’t call it fall for nothing, huh? And it is September after all so don’t expect anything other than falling markets. (Read here why that’s the case plus how you can take advantage!) But on a serious note, markets aren’t good right now.
And it’s not just the stock market. Look at the bond market! Its bubble is unravelling. Bonds’ yields are rising, sending their prices down. Way down. This year bonds are down 13.8% so not exactly a good source of diversification.
Let me tell you that while none of this is wanted, any of it, it might be the best thing that ever happened to us. I can hear your uproar! But please, please read on!!
Up until now, assets have been super pricey. That’s all changing now
Up until now, stock markets have been expensive. And houses have been equally expensive. We weren’t able to buy a portfolio of stocks without paying over-the-odds and a property? Ha. Fat chance. Millennials will tell you all about that!
Last year alone, US house prices rose by 30%. This isn’t normal. And now that rates are rising, it just got a whole lot pricier to own your own. In the US, the average 30-year fixed mortgage is 5.66% which is almost double what it was a year earlier! Mortgages are at the highest level since ‘08. To really put things in perspective, since Q4 of 2020, rents have gone up by 10% while mortgages have gone up by 60%.
And if interest rates actually do hit 6% next year some forecast, then house prices would most likely take a hit. And that’s good news for us youngsters! It means we’ll finally be able to buy a property of our own. An actual, livable property, not dingy London studio. With the cost of servicing a mortgage going up, eventually house prices will start to come down. Fewer people will be able to afford bigger homes since mortgages will be sky-high. And that’s when our deposit will be cooked and we’ll (hopefully) be able to climb that property ladder. Fingers (and toes) crossed.
Low rates = high inequality
Rock-bottom interest rates made wealth inequality into the beast it is today. Low rates fuelled cheap debt which meant that the rich could gobble up assets like I do chocolate while the rest of us were left gawping. Cheap debt meant getting a house (or five) was easier. Lower monthly payments meant more could afford to take out a mortgage so demand for bricks and mortar rose and prices did so with them. Pricing a whole gen out.
But now the trend is reversing. Whether or not it’s a permanent, structural change, that’s a schmooze for another time! But for now, just know that inflation ain’t transitory (not sure what gave that away?!) and that rates are rising for the foreseeable future so get comfy. And grab your popcorn.
Okay, so rising rates might suddenly not be that bad after all. Not for us not–yet-homeowners anyway. It means we have a shot at our own property. And for my friends with their coffee subscriptions (you know who you are!) maybe now you’ll feel a teensy bit better about your prospects and the guilt might start to flop like your froth.
And onto our second pain-point: a market crash.
For us to buy a portfolio of stocks, we’ve had to buy them at high valuations. Gen zers started investing during the pandemic this is a sensible assumption since I bet we didn’t start when we were toddlers. The youngest I’ve known someone to start investing is at 16. And now markets are falling. They’re falling because things have gotten so bad and they think the damage will go on for a while.
Fall now; rise later. Please!
Major indices are down this year, the S&P is down 25% while the Nasdaq is down a mad 34%. Your portfolio is mostly down. Mine’s down 15% since I started investing in November 2020. But a stock market crash now is way better than one in 10, or even 20 years’ time. Now, our net worth is probably small. At least mine is! And a whopper stock market crash now means not much will go. Because there wasn’t much to begin with!
But imagine if you were in your early 30s, saving for a house and the market went belly-up. You’d have lost a massive portion of your would-be deposit. Even if you had years to go till you wanted to buy, I doubt you’d be able to make it up. Or take someone close to retirement with a large portion of their pension in stocks (as we’ve seen bonds aren’t exactly risk-free!), a 20% market fall is much more painful, significant and damaging.
Being in your early 20s and experiencing a stock market crash means we get to take advantage of market lows and dollar-cost averaging into that. We get to learn these tough lesson of losing money now rather than later down the line when losing that money will hurt way more.
So try to take this on the chin. Sure, it’ll sting a LOT but be glad you aren’t 60, watching a chunk of your life’s savings (and hard work) vanish from before your eyes. My friend’s dad lost it all in ’08. It was ugly and his kids don’t touch the markets.
Be lucky that you’re young with bucketloads of time ahead of you. Let time do the heavy lifting and appreciate the stage of life we’re at. We aren’t close to retirement, nor have we built up much of a deposit fund and we probably don’t have any dependants.
Dear readers, keep on grinding, building and investing. Think long-term and don’t be afraid to pounce when others are simply too scared, and frankly too scarred.
We’re young. We’ll bounce back. We always do.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Knead Your Dough 
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