In this article I will discuss how market crashes / corrections (or whatever else you want to call it) actually help young people.
A market crash is when markets shift downwards faster than anticipated, and go lower than people expected. The most recent cases would be the 2001 and 2007-2008 crashes / corrections.
"GenY, wtf man, I have a lot of money in markets we can't have a crash!"
Agreed, for people who are already heavily invested, or close to / in retirment a market crash is the last thing they want happening. A crash near retirement could delay someones dreams of escaping the work place. And worse for already retired people they may have a hard time financing thier lifestyles.
However, there is another side of the coin we should look at. The Vanguard S&P 500 ETF - VOO is up 96% in the last 5 years currently costing around $207 a share. Thats a lot of money for the same product people were buying for $105 just 5 years ago. Basically that means you are paying $102 more for the same product, with the same returns and distributions as someone who paid $105. Thats simply too expensive for many young investors.
Let's imagine there is a 15% market crash (markets drop by 15%). So theoretically that fund would cost $176. So you get a 15% discount, and the people who bought in 5 years ago have still made $71 or 68% profit in 5 years, giving them an average yearly increase of 13% < still excellent.
This same principal applies to housing markets. During the 2007-2008 crash a lot of people lost their homes. However, there were savers who could finally afford a home once prices came down.
So are market corrections (as we will now call them) a completly bad thing? No, I don't think so. So long as it is within the bounds of reason, and the drop is not so steep that it ruins people. Because honestly, should we be expecting more than a 13% retun on investment year over year? A 19% average increase year over year does seem a bit exaggerated. It's great if you are already on the party train, but for everone else, they get left in the dust.