Our generation of young professionals is a unique one, we’ve essentially grown up in the longest running bull market on record. I myself was a first year in college during the 2008 financial recession and vividly remember the fear that I felt, and remember the fear that my parents and grandparents felt too. We weathered the storm the economy bounced back. Thankfully by the time I graduated, I was able to get a decent paying job in the corporate world and have been gainfully employed ever since! 

However, I worry that our generation is especially at risk for believing that the market only goes up and that the financial good times will last forever. It’s difficult to fault us young professionals as literally, all the market has done over the past decade has gone up (aside from March/April 2020 but it quickly bounced back) and we’ve seen outstanding financial gains in the market. I unfortunately am here to tell you that in fact, good financial times won’t last forever.

I say this even seeing the world start to emerge from the COIVD pandemic, with many consumers ready to have a busy summer of trips, events and shopping, which undoubtedly will be good for the economy. However, on the horizon I see inflation. Inflation (at least from my reading), is a tricky economic topic but I’m sure we’ll be hearing more of it in the news in the coming months. Along side with that, we’ve got record levels of national debt, and (in my opinion) a strong economy but one that is not immune from severe shocks. It almost feels like (in my opinion) that the economy is going along great but as soon as something bad happens, we’re really in for a tumble. The economy is only as good as the underlying confidence held by consumers, and things are quite volatile right now and only seem to be getting worse. 

So, with that in mind; knowing that sometime in the future things will not be as great for the economy and we’ll likely see: a decline in the stock market, a decline in housing prices (which not sure how it is where you are but our local real estate market is insanely hot right now), and potentially layoffs and more unemployment. So, what is a young professional to do, especially this one (the author) going to do about it? 

Simply put, nothing

I’ve seen a lot during my time as a young professional (being a decade in), and one thing that I learned is that it’s generally best not to panic. I’ve got some friends that aren’t as good as me at not panicking, and have a bad habit of exiting the entire market (i.e. selling all stocks/mutual funds) and getting into cash at the first sign of bad news. I’ve seen it several times now; they jump out and end up not saving any money, as they have to buy back in at a higher rate than when they exited. I also have known friends that have been sure that the ‘drop’ is coming any day now, and have held onto too much cash for far too long. As such, they’ve missed out on a number of big gains!

No one has a crystal ball and we don’t know when, or really if a financial downturn is happening. As I stated in the opener, I’m pretty sure that it will happen in the future, but I don’t know when. I’ve thought that a downturn was coming before only to have been wrong and to have continued to watch the stock market go up-up-up. So, as loud as people on the internet or TV will yell to “get out of stocks” or “get into cash now”, I’m not going to listen to them. I’ve got a good strategy of saving for retirement, paying down my mortgage, and investing in index funds, and I’m going to stick to it. Sure the market might go down in the future but as I mentioned previously, there’s no guarantee of when! I’m going to continuing my strategy and keep investing! 

Now, this is probably not what you were looking for when you clicked this article, so I will elaborate a little more on why I feel this is the right approach. 

Keep my emergency fund stocked

If 2020 taught us anything (and I like to think it did), it’s the importance of an emergency fund. A good emergency fund is 3-6 months of expenses stashed away in a separate (high-yield) savings account. I slept a whole lot better through 2020 (albeit not great) knowing that if myself, or Mrs. Money were to be laid off, that we’d be ok and figure it out. 

My confidence to stay the course of investing comes from in part by having a good safety cushion. I know that if (or when) bad things do happen and we face financial setbacks, we’ll be ok. Outside of my emergency fund I also have some general savings accounts and of course stocks/index funds that I could dip into if things got really bad. However, knowing that I have in cash 3-6 months worth of expenses makes me feel a lot better.

I will confess that I have been tempted to pull some of it out, or to trim it down to maybe 1-3 months of expenses and put it into the market. However, that feels like it’s crossing a line in the sand for me and even though on paper it might be a good idea to chance a little bit of it for higher gains (which seem to come easy these days), it just doesn’t feel right. Once again, I have my confidence thanks to a good financial safety net and I’d like to keep it that way!

Keep investing in index funds

I believe that steadily investing in the stock market over the long-term in low-cost index funds is one of the better ideas for building long-term wealth. On average the stock market has returned 8% year over year. Note that’s an average so some years it’ll be better and some years it’ll be worse but by staying the course, not selling in and out and by continually investing, you’re able to reap the benefits of slow and steady growth. 

As savvy or as smart of an investor I like to think I am, time and time again I’ve proven to myself that the index funds (mainly Vanguard for me) that I’m in have done just as good, if not better, and definitely not worse than some of my individual stock picks. It’s not a sexy or super fun strategy but in my mind, it works and is the best plan for me!

As such, even if (or when) bad times come around, things will eventually turn around, and I’ll emerge and be ok! The generation that went through the great depression made it out ok, as the ones that made it through the 2008 financial crash. In my mind staying the course and continually investing is the best idea! Sure if I had a crystal ball I’d jump out at the top and buy back in at the bottom but no one does have a crystal ball and I’d rather not try to get lucky with my timing and instead tune out the noise, stress less and keep investing! 

Keep professionally developing

The one last and very important piece is to continually develop professionally. I’ve been fortunate enough to have earned a few promotions and a few raises in my career, and have changed jobs a few times. A good paycheck also helps make the bad times a little bit easier, and a good paycheck comes from being a sought after employee. I personally am always setting professional goals (becoming a better story-teller is mine this year), and am always looking to continue education both in formal and informal on the job trainings. Always be learning and growing and you’ll find yourself in a better spot both in the good times of an economy and the bad times! 

Summary 

The incredible growth market of the last decade won’t last forever but I’m confident that if/when a downturn comes, I’ll be able to weather through it and believe that by staying the course I’ll worry less and emerge just fine!