Michael Wagner in the Miami Herald: Millennials Should Embrace Stock Market Volatility

0Omnia Family Wealth Managing Director Michael Wagner recently wrote a column in the Miami Herald about a topic he is exceptionally familiar with: millennial investors. A millennial himself, Wagner shares why this generation, whose views of investing are largely shaped by the dot-com boom and bust, September 11th and the financial crisis of 2007-2009, should actually embrace stock market volatility.

Wagner opened his column with a popular meme:

“I’m glad I learned about parallelograms instead of how to do taxes. It’s really come in handy this parallelogram season.”

Roughly between the ages of 22 and 38, most millennials were not offered classes like “Paying Your Taxes,” “Asset Allocation 101,” or “How to Adult” but instead are learning these fundamentals as they go along. Among these fundaments is understanding the role of volatility in their investment portfolios.

“So far, 2018 looks like a great year for some experiential learning about long-term planning and volatility in financial markets,” Wagner writes. “As of mid-April 2018, the Dow has already closed up or down in excess of 400 points from the prior day on 11 different occasions. Yet, the overall value of the market has not changed much since the start of the year.

“Millennials, particularly, should not fear the recent bout of stock market volatility. In fact, volatility and uncertainty are features of stock markets, not bugs in the system. With risk, comes reward. As one of the riskiest liquid asset classes, stocks are the growth engine of your portfolio. Bonds and alternatives are there to smooth out the ride,” explains Wagner.

Wagner illustrates his point with an easy-to-understand example. “When you own a piece of property, you probably have a pretty good idea of what that property is worth. It’s an imperfect measure though, usually somewhat based on comparable sales or “comps.” These sales can happen frequently, or not,” writes Wagner. “Stocks, on the other hand, are constantly traded throughout the business day. Every trade is a comp, and there is a lot of data generated by all this trading. It’s important for a long-term investor to recognize that most of this data is actually just noise.”

The fact that many millennials are susceptible to “noise” shouldn’t come as a surprise. Millennials generally entered adulthood in the years between 1997 and 2014. “What else happened in that period?” asks Wagner. “The dot-com boom and bust. September 11th. The financial crisis and bear market of 2007-2009. In South Florida, Millennials also saw a huge real estate boom…and bust.” Millennials should remember that not every correction is a crisis, despite the fact that they represent an entire generation of the investing public that has only seen crises.

“I am here to tell you that, especially for millennials, risk can be a good thing,” Wagner writes. “The great thing about uncertainty is that it cuts both ways. Everybody freaks out about volatility and risk on days when the stock market is down, but you don’t hear much about it on up days. People who are in their 20s and 30s today have decades, not years, before reaching retirement age.”

While retirement is decades away for millennials, Wagner emphasizes that it is never too early or too late to start planning for the future.

“The most important takeaway is that you have a plan that takes into account when you will actually need to access your savings, how much uncertainty you can tolerate between now and then, and that your future investments are all working together to get you closer to your goal.”

 

Important Disclosures: Omnia Family Wealth, LLC (“Omnia”), a multi-family office, is a registered investment advisor with the SEC. This commentary is provided for informational purposes only. No portion of any statement included herein is to be construed as a solicitation to the rendering of personalized investment advice through this communication. Consult with an accountant or attorney regarding individual tax or legal advice.