Kids' Table Revisited: Gen X and Y Investing

Thanksgiving is as much about memories and traditions as it is about the turkey and dressing.  Some of my first Thanksgiving memories were of a card table erected for my cousins and me. Grandma’s dining room table overflowed with adults, crammed in elbow to elbow. There was no room for the younger eaters. We moaned and groaned about being side-lined at the Kids Table and endured it like a rite of passage.  Yesterday my two-year old son Gus took his place for the first time at the Kids Table where he was guided through the Thanksgiving meal by his older cousins. And so the tradition was passed on from my generation to his. 

When it comes to investments, if you’re Gen X or Y, you have seemingly been stuck at the Kids Table for quite some time. Sure, you may be acting all grown up, setting aside a portion of your earnings, but so far, it’s been a rough ride. While your parents and grandparents experienced “normal” return environments including bull markets in the 80s and 90s, most of your generation’s early investing years have been rocky topped off with a Lost Decade.  It gets worse:

  • Social security’s future is cloudy and pensions are a thing of the past. 
  • To get a college education, you took on student loans that make you feel like getting to the starting line of likely saving and investing is miles and years away. 
  • While financial planning calculators tell you to assume an 8 or 10% return on many equities using 80 years of return data, you’re a little skeptical at this point having given it the old college try for more than ten years.  In fact, this month, Jeremy Siegel, a Wharton professor of finance, reported that bond returns beat stock returns over the last 30 years.  This is the first time this has happened since the Civil War era. 

All of this bad news is having an effect on your generation’s behavior.  Analysis by the Pew Research Center this year indicates that today’s 47-to-1 wealth gap between old and young may be the highest ever (NYTimes).  An October MFS survey showed that twenty-somethings were holding 33% of investments in cash and 52% of young people said they would never be comfortable investing in stocks (WSJ). 

All is not lost:

  • Diversified investment portfolios have historically benefited investors over long periods of time and will likely do so again.  Historic anomalies (such as stock returns vs. bonds) typically revert to mean returns over time.
  • While the job market is tough, your peak earning (and saving) years are generally ahead of you.  Your human capital may be your best asset.
  • Ten years ago, the iPod was just being introduced to the world – new ideas, inventions, and innovation are not a thing of the past and there will be wonderful, life-altering changes in years to come. 

For your generation (which happens to be mine, too), it’s time to get up from the Kids Table. By this, I mean, act like a grown up and take on the lifelong challenge of saving and investing.  There’s no need to ask for permission … though it's a great idea to look for some help. A Certified Financial Planner can bring you some perspective and offer advice as you try to find your way.