AP: For young, recession offers deals of a lifetime

Discussion in 'Wall St. News' started by short&naked, Oct 5, 2009.

  1. http://news.yahoo.com/s/ap/20091005/ap_on_bi_ge/us_meltdown_generation_gap


    NEW YORK – The Great Recession has turned into the best of times for young investor Daniel Lee.

    Early this year, the 30-year-old salesman in Scottsdale, Ariz., shelved expensive meals and vacation plans and threw "every spare dollar" into the stock market. The value of his portfolio has more than tripled as the market has rallied since March.

    "This is like buying a swim suit in the fall or a winter jacket in the spring," he says. "Get in while it's a good deal."

    Halfway across the country in Detroit, retiree Irvin Hall, 70, is living through the recession in a different way.

    His mutual funds fell 35 percent during the stock market plunge that started last fall and continued for six months, and his monthly pension from General Motors dropped by 10 percent. He and his wife pay more for health care and medicine after the company reduced his insurance benefits.

    "It takes your mind a while to really adjust to this," he says. "You're expecting, hey, I'm set for life, and then all of a sudden that's taken away."

    The plight of baby boomers and retirees has been well-documented in the year after the financial meltdown. But for people in their 20s and 30s who have a good job and feel it's secure, this is the best of times. Many were renters and had little or no money in the stock market. They didn't take a six-figure hit to the value of a home or 401(k) account. Now they're positioned to invest at prices no one would have believed during the boom years.

    Home prices are down 30 percent, on average, and 50 percent or more in some markets. The Standard & Poor's 500 stock index is nearly 34 percent below its record high in October 2007.

    Young people are benefiting in other ways, too. The Cash for Clunkers program allowed them to trade in beaten-up used cars and buy new ones at a discount. "They're never going to see that again," says John Rogin, who owns a Buick dealership in Livonia, Mich.

    The Consumer Price Index has recorded a rare drop over the past 12 months — 1.5 percent. And the decline for many goods and services has been much greater, allowing young people to put even more money into stocks and housing.

    "This is a historic time," says George Jaramillo, 35, a business analyst in Atlanta, who recently purchased three homes, including two at foreclosure prices. "It's a great opportunity to make some great gains in the future."

    Besides low prices, many have been spurred by low interest rates and a tax credit of up to $8,000 for first-time homebuyers. First-timers, many between 25 and 34, accounted for about 45 percent of home sales at the end of July, a figure that has risen steadily over the past two years, says Walter Molony, a spokesman with the National Association of Realtors. Only 39 percent of adults under 35 are homeowners, compared with 80 percent of those over 55, according to the U.S. Census Bureau. So the opportunity for those in their 20s and 30s to take advantage of the real estate crash is greater than for any other age group.

    Young people also got a break with the stock market. Even with the surge since it hit a 12-year low on March 9, the S&P 500 index is nearly 30 percent lower than it was at the end of 1999. A recent study by T. Rowe Price, a money management company, highlights the benefits that young people can receive from investing in a down market.

    The study compared how returns differ if someone starts investing during a weak decade for stocks that's followed by a strong one — and vice versa. Somebody who invested $500 a month in a fund replicating the S&P 500 starting in 1970 and continuing through the bull market of the 1980s would have ended 1989 with $589,707 — for an annualized rate of return of 11.5 percent.

    The 1970s were characterized by high inflation and high unemployment and a flat market, setting the stage for the 1980s when the S&P 500 tripled.

    If the decades are reversed, and the strong years of the 1980s were followed by the 1970s bear market, the account would be valued at $358,972, even though the annual rate of return would still be 11.5 percent. The difference is that the investor in the first situation would have been buying more shares of stock each month during the bad years of the '70s.

    "We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."

    For young people to take advantage of deals, however, they need to have a job — and cash. Neither is a given.

    The unemployment rate for workers ages 20 to 24 jumped to 14.9 percent in September, up from 10.8 percent in the same month a year ago. Unemployment for those 25 to 34 is 10.6 percent, almost a point above the rate of 9.8 percent for people of all ages.

    And the skyrocketing cost of undergraduate education means graduating seniors who borrowed money for tuition enter the work force with an average of $23,118 in student-loan debt, according to the Department of Education. About 65 percent of students take out a loan to finance their education.

    Plenty of people, though, are taking advantage of this recession's generation gap. Ann Seiden, 28, bought a home in Phoenix last November for 15 percent below the asking price.

    Some people are casualties of the recession, she says. "And there are those who have kind of seized on the opportunities in it."
  2. lol thats why this is so far from over. do people really believe you can have 30 years of mania credit growth,consumption and prosperity and the pains over in 1 year?the mkt skying 60% has given all a false sense of security and complacency this is over. its the 2nd or 3rd inning. ask japan how many false starts and its finally over hopes they had.
  3. Yeah, if they have jobs.
  4. kxvid


    This economy sucks for young people the most. Business startup costs are less expensive, and stocks but they are lower for a reason. Older people have SS/ medicare, and the 60s generation has savings. Young people have nothing and a ruined economy courtesy of the baby boomers. Wealth creation will be few are far between for gen X/Y2K. This economy is shot and isn't coming back.
  5. kxvid, very well said. That's why I posted that news item. I consider it propaganda, plain and simple.

    Global competition has also increased the supply of the available work force thus depressing wages. Let the boomers bitch all they want, it was the younger generation in the 80s/90s anyway that facilitated the boom (advertising started even before they could crawl). Also, due to this, we now have a generation that does not see the dangers ahead and how to combat them.

    For many it will the debt trap and other will just get by, but serious wealth creation, I just don't see it happening.
  6. But for how long... :)
  7. Yes this is really true. The new generation is filled with people that just plain don't care, don't care about anything except wasting time. There's no nobility in knowledge or curiosity anymore.
  8. aegis


    Not true.

    Plenty of my friends (20-30 crowd) see the writing on the wall, and they're pissed. No jobs and no future. Their heads are buried no further in the sand than the pot smoking baby boomers of the 60s.
  9. Hi MaklodaSux,

    Indeed, this gen. is certainly clever and cunning. But when it comes to free associations and independent thinking they fall short. Unless something has a 'goal' it is not worthy of their consideration.
  10. Agreed. In fact, the boomers had the benefit of not having to be aware of such problems due to the major expansion they witnessed (pro-global competition).

    But ask ANY of them now and they will admit no fault in this. It's incredible. They don't have a single ounce of regret. Just make sure their SS and 401k are zipping along and all is good. Fuck the next gen.

    The real problem is that the 20-30 crowd simply does not know what to do and how to respond to this crisis.
    #10     Oct 6, 2009