Two Bursting Bubbles in 10 Years Dish Out Hard Times
In this latest financial meltdown a lot of attention has been spent talking about the baby boomers who are looking to retire but have recently seen their nest egg drop 30% or more in a little over a year. This is obviously a significant event and will lead to a lot of changes in how the older generation views retirement and investing in general, but what about us? This generation has taken it on the chin twice in just the past decade right as we’re trying to hit the ground running. This has some members of Gen X reconsidering what it means to have job security and how to invest for the future.
Dot Com Goes Bust
We don’t have to turn back the clock very far to see what happened to our generation in the first major economic meltdown. The late 90s were the roaring internet years. It seemed that every day a new technology company was starting up or going public and the stock market was enjoying the ride of its life. People were making money at a record pace as the internet propelled innovation and new jobs, and of course, inflated stock prices.
I found this article on MSNBC that talks about this scenario and shares some stories of fellow Gen Xers. They start out talking to Marc Matsumoto who has a story that many people can relate to.
He graduated from University of California, Davis, in 2000 and was inundated with job offers from tech firms. “It was ridiculous. I would get 30 calls a day from recruiters,” he recalls.
He chose a six-figure job with a software firm, but ended up unemployed after only six months as the dot-com boom went bust.
This scenario has played out numerous times in this generation. The majority of Generation X was coming into their own in the 90s and many were attracted to these new technology careers. Many were going to college to study computer science or engineering and hoping to land a high-paying job in this exciting and rapidly growing sector.
And the good news is that if you found yourself graduating in the mid to late-90s, this dream often came true. While the hot sector was in technology, even those who weren’t seeking an internet job had a better chance at finding solid employment as the economy was doing well. But, just like the story Marc shares, for some this dream didn’t last very long and even young, highly-skilled workers found themselves in the unemployment line.
Going Beyond Employment
While it’s easy to see how the collapse of the internet bubble led to a lot of young people losing work, it goes beyond that. Even if your job was safe and were in a relatively unrelated industry, there’s a good chance you were still significantly affected. Look no further than what happened to the stock market starting around 2000. In the preceding few years, the stock market saw a meteoric rise. Good news if you had money to invest. Bad news if you were part of Generation X and just starting to seriously save money for retirement for the first time.
As this generation set out in the workforce in the 90s, it was time to start saving for retirement. This generation does a good job in recognizing that the government probably won’t provide much help when it comes to providing a retirement income, so taking the plunge to start setting money aside in a 401(k) or something a lot of people started doing in the 90s. But how quickly things change.
Many Gen Xers who started investing in the 90s quickly saw their retirement portfolios drop like a rock at the turn of the century. All the euphoria that surrounded the rapid gains was quickly replaced with anger and confusion as their portfolio values were cut in half or more. So, not only did a lot of people lose their jobs as many of these internet companies laid people off or closed altogether, but even those who were well-removed from the technology sector found their new investment plans shaken.
Fast Forward to Today
Whether it was falling on hard times due to disappearing jobs or simply a devastating blow to your retirement portfolio, this generation spent a number of years just trying to get back to where they were before the bubble burst. Those who lost their jobs may have had to explore a new career path. Those who saw their investments tank may have waited five years just to get back to where they were at the height of the excitement. Things were finally starting to look up a few years ago, but it has all come crashing down yet again.
For the youngest members of Generation X, those aged 25-34, the jobless rate has jumped to 8.7 percent from 4.9 percent a year ago, according to the Bureau of Labor Statistics. That puts them right in the middle, as younger workers have an even higher jobless rate, while older workers stand a slightly better chance of having a job.
Ouch. And I don’t have to tell you about how the stock market is doing, but Gen Xers have seen the brunt of this market downturn as well. We’ve been told for years that since this generation has a long time until retirement that you should be invested primarily in stocks. Well, if you’ve been doing that, you’ve also probably experienced a 40-50% drop in your retirement portfolio in just 18 months.
How is that for a double whammy? If you got started investing in the 90s only to see your gains wiped out in a few years, only to stay the course and spend the next five years getting back to where you were, to then find your portfolio cut in half yet again — that’s a hard pill to swallow. Many Gen Xers see the past decade as a complete waste since their money could have done better sitting in the bank. On the surface that may be true, but like I’ve said before, even though the market has been doing poorly over the past 10 years, you’re actually buying assets and it isn’t like sticking money in the bank. Thinking ahead 25+ years and even though you may not have made any money over the past decade, your assets will increase in value.
A Golden Opportunity
When trying to look at the situation with a glass half full approach, you have to recognize that even though it’s been a difficult ride over the past ten years, this could be a perfect opportunity for this generation to get ahead. Unlike the boomers who are winding down their careers, we have the luxury of time to recover economic losses. The older generation doesn’t. Not only that, but a boomer who is thinking about retirement can’t easily pick up and move to a greener pasture. They may have vested too much in their company, be in a position where leaving isn’t an option, or are banking on some retiree benefits from their employer. Generally speaking, this generation isn’t in that position.
This generation didn’t enter the workforce expecting to be with a single employer for 30 years just to get a gold watch and a pension. Generation X understands that Social Security might be a long shot, and even if there is some government retirement benefits, they will be insufficient to pay for retirement. And with companies lacking pensions and throwing loyalty out the window as they seek to streamline their costs, we understand that bouncing around from job to job may be part of the game. Because of this, Gen Xers are resilient and flexible. While others may find this recession almost unbearable, we have what it takes to make the most of it and come out even stronger on the other side.
This is a perfect time to invest in yourself and in your future. Not only can you put yourself in a position to get through these tough times, but you can position yourself to reap the rewards when the economy does turn around. By improving yourself, you’ll become a greater asset to future employers or may even find yourself on a path of entrepreneurial success. And even as your investments take their second beating in just a few short years, use this time to educate yourself and begin making smart investments that will pay off in the future.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.