Guide To Navigate The Stock Market (FREE GUIDE)
In 2009, Mohamed El-Erian was the CEO of PIMCO, one of the largest investment management firms in the world. As the world struggled through the early months of the post- crisis recovery, El-Erian tried to get a handle on how to view economic and investing prospects in the coming years. Many assumed that the economies of industrialized countries like the United States would sooner than later bounce back to pre-crisis economic health, as has historically been the pattern after most recessions. But El-Erian and his colleagues felt that the aftershocks of the Great Recession would be deep and long-lasting. They coined the term “The New Normal” to indicate a prolonged period of sluggish and uncertain growth. “Our use of the term was an attempt,” he wrote, “to move the discussion beyond the notion that the crisis was a mere flesh wound, easily healed with time. Instead, the crisis cut to the bone.”
Similarly, in April 2016 the McKinsey Global Institute, a respected analytics group, released a report supporting this idea of The New Normal. “The forces that have driven exceptional investment returns over the past 30 years,” the report says (such as low inflation and interest rates, strong global economic growth, and high corporate profits) “are weakening, and even reversing. It may be time for investors to lower their expectations… After an era of stellar performance, investment returns are likely to come back down to earth over the next 20 years.” Even a modest decline in average returns, they point out, has serious repercussions for the average investor: to make up for a 2% drop, for instance, “a 30-year-old worker would have to work seven years longer or almost double his or her saving rate.”
It was this challenging future I had in mind when I wrote the Millennial Advantage. The Financial Crisis of 2008 has left a mark on your financial prospects and will continue to do so. Older Millennials who had already purchased a home and those in debt suffered a significant loss of wealth during the crisis. For younger Millennials just entering the job market, the crisis dealt a sharp blow to job prospects and wages at precisely the time that young workers are usually building up their earnings potential. Millennials are embarking on their lifelong journey to build lasting wealth with a significant handicap.
I remain optimistic that your strengths and advantages, and the strength and dynamism of the economy, will ultimately allow you to overcome that slow start. But an overly cautious approach to building wealth is unlikely, in my opinion, to meet the challenges posed by The New Normal.
Millennials, more than any previous generation, must take responsibility for their own long-term financial well-being.
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