Broker Check

Learning The Hard Way

May 05, 2023

Ernst & Young recently published a survey that found nearly half of the millennial respondents turned to cash last year due to market volatility1. That meant they were likely to miss out on the subsequent rally. By comparison, just 34% of Gen X and 24% of Baby Boomers sought safety in cash.

Merriam-Webster Dictionary defines a millennial as a person born in the 1980s or 1990s2. That means millennials are somewhere in their early 30s to early 40s and have around 2-3 more decades before they start to retire.

If anything, they should have been one of the generations to sit back and relax because they have so much time before they actually need to sell. Furthermore, the chart below shows that a holding period of two decades has historically been ideal for owning stocks.

While this may be old news to more seasoned investors, put yourself in the shoes of a thirty-something last year. Imagine having a young family, a starter home, and a modest amount invested in a brokerage account. They’re trying to do everything they’re supposed to do, like building kids’ college and retirement funds.

But because of their age, most millennials haven’t owned financial assets through a real bear market like 2001 or 2008. They’ve never felt the gut-wrenching feeling of watching a nest egg funded by hard work and disciplined savings get hammered alongside nonstop media coverage on why stocks could tank further.

It also didn’t help that their most valuable and levered asset – their house – probably wasn’t worth what it was a year ago. God forbid if they owned Bitcoin.

Making matters worse, most millennials don’t work with a financial advisor, so there was no one at their side to help them stay on track during the market lows in October.  They were all alone, and it’s human nature to fear what we don’t understand.

Using charts like the one above and below to reason with them would have been like prescribing penicillin to treat a viral infection. They needed experience, and that’s not something that can be gained by reading finance books and studying history.


The bottom line

I graduated college in 1999, when the internet was changing the world in ways no generation alive had experienced. The hype was immeasurable, and since I knew it all at 22 years old, I put as much of every paycheck as possible into the stock market. But not just any stocks. I only bought the meme stocks of that time, like JDS Uniphase, Telocity, and

I completely ignored valuation, dividend yield, or any opportunity to analyze the underlying fundamentals. That was too boring and took too much time. Besides, my portfolio was doubling in value every couple of months. It was easy money, so why exert any effort?

It's pretty obvious how that story ended, and even though I lost nearly every dime I had invested, I learned so much that I’m grateful to this day that it happened. Because it made me a better investor, and those mental scars taught me more about risk than any textbook.

That’s why I stayed on the sidelines when the meme stocks of 2020 began rising alongside NFTs and sneakers that were being sold for more than houses. Now that I’m in my mid-40s with kids and real responsibilities, learning the hard way back then kept me from making a similar mistake today when the stakes are much higher.

The bottom line is that Millennials who sold last year may be kicking themselves right now, and that’s unfortunate. Even the most successful investors are wrong more times than they are right. What makes them better than the rest isn’t superior cognitive skills but rather, they refuse to quit and use mistakes to get a little better each time.








This material has been prepared for informational purposes only and should not be construed as a solicitation to effect, or attempt to effect, either transactions in securities or the rendering of personalized investment advice. This material is not intended to provide, and should not be relied on for tax, legal, investment, accounting, or other financial advice. You should consult your own tax, legal, financial, and accounting advisors before engaging in any transaction. Asset allocation and diversification do not guarantee a profit or protect against a loss. All references to potential future developments or outcomes are strictly the views and opinions of Richard W. Paul & Associates and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in various economies and investment markets. Past performance is not necessarily indicative of future performance.