DIY investors looking at today’s market need to recognize that 2022, like every year, is its own animal. Expecting equities to behave like they did in 2020 or early 2021, when the market was being driven by a unique confluence of government stimulus, hype and free time, is an error waiting to happen, says Chris Karram, managing partner at SafeBridge Private Wealth.
“You did not have to be a genius” to pick winners in 2020, Yamada says. “You just had to buy something, and it would go up.”
That expectation still appears to be in effect for at least some investors, particularly those too young to remember the early 2000s dot-com crash or the 2008 financial meltdown.
“Gen Z have only seen the market go up, with the exception of 2020. And what they’re expecting from the market is really extraordinary,” says Yamada.
In a survey conducted by American financial services company Capital Group in March of 2020, millennial investors said they expect a 15% annual return on their investments. Gen Zs said they’re expecting returns of 26%.
It’s a phenomenon Yamada attributes to young investors’ belief in “buying the dip.”
For perspective, the annual rate of return on the S&P/TSX Composite Index was 9.3% between 1960 and 2020, according to an analysis by Morningstar.
Some experts expect future returns to fall well short of that figure. A recent Credit Suisse report says Gen Z investors, whom the bank defines as those born between 1997 and 2012, should be expecting annualized returns more in the range of 2% in the coming years.
Could such a sudden reversal be possible after the strength the market has displayed in the past two years? Absolutely.
As Credit Suisse explains, in the 20 years leading up to 2000, the historical real annualized return on global equities had been 10.5%. But from 2000 to 2010, the average was -0.6%, thanks to the beating handed out by the Great Financial Crisis. Times change.
“You never know what the return of the market is going to be,” Yamada says.
Watching GameStop’s stock slide more than 30% in the last six months should have you wondering whether you should keep getting your investment advice from complete strangers on Reddit.
Investing for yourself requires a steady diet of information. Just be sure to check where it comes from
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