Next-Gen Investors and the Opportunity of a Down Market

Mar 7, 2022

If you’ve been reading SMI content for a while, you’ve heard certain messages time and time again. Have a plan. Stay with your plan. The market moves in cycles. Time in the market trumps market timing. And on and on. But have your kids heard these messages? Or your grandkids? And have they experienced these messages?

If you have young people in your life, hopefully you’ve been helping them learn about investing. One important lesson that will serve them well is to expect both ups and downs in the market. Even better if they actually experience those ups and downs, and if they do so with some real money — their money.

As you’ve heard many times on this site, emotion can play a significant role in our investing. When the market is rising, greed can tempt us to take on more risk than we should. When the market is falling, fear can tempt us to sell. Both emotions can do a lot of damage to a portfolio and cause a lot of sleepless nights.

Right now, with market volatility high and the overall direction of the market trending down, is a perfect opportunity to talk with our kids or grandkids about the importance of having a plan that’s well-suited to their age and risk tolerance and staying with it. And as I said, even better if they can experience all of that.

Learning opportunities for all

In our household, our three kids are 18, 15, and 13. They’ve had investment accounts for over five years. Because of their young age, I encouraged them to be very aggressive. They went all in with Sector Rotation. And things started out really badly. Their accounts lost value and stayed negative for an uncomfortably long time.

I confess that I felt so bad about it that I funneled some extra money into their accounts. It was a parenting fail, to be sure. I was trying to protect them from some pain, which was absolutely the wrong thing to do. Some of the most important and beneficial lessons I’ve learned in life have come about through painful experiences. So I’m done bailing them out when the market turns south.

While I have certainly made some mistakes, some good lessons seem to have gotten through as well. The other day, I asked our oldest how often he checks on his investment account. He said, “Once a month, when it’s updated. Why look at it any more often than that?” I loved that answer.

A well-rounded education

I want our kids to learn the nuts and bolts of investing — what a mutual fund is and an ETF, how dollar-cost averaging works, how traditional IRAs differ from Roths, how a 401(k) plan works and the importance of taking advantage of any employer match, and more.

Equally important, though, I want them to experience the market’s ups and downs. I want them to know that while the market’s long-term trajectory has been upward, the path has been far from smooth. Life is unpredictable, which means the market is unpredictable. Who could have foreseen the pandemic? Or that the market would react by falling as much as it did as quickly as it did in the early days? Or that it would come roaring back so strongly?

I want them to see the value of their own account going up and going down. I want them to feel whatever they feel in a sell-off. If that’s fear or pain, so be it. I want them to develop the tough skin and the emotional fortitude to feel those feelings and not let their emotions dictate their behavior.

“Your success in investing will depend in part on your character and guts and in part on your ability to realize, at the height of ebullience and the depth of despair alike, that this too, shall pass.” – Vanguard founder John Bogle.

I want them to have the enduring optimism of Warren Buffett, who believes so fervently in the ingenuity of business leaders and entrepreneurs and is grateful for the freedom to invest in them.

“A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” – Warren Buffett

And I want them to trust in God, not their investment accounts — to have the faith so vividly displayed by the more than 500 SMI members who sent us more than 70 verses of Scripture that they leaned on during the scariest moments in the early days of the pandemic.

“Some trust in chariots and some in horses, but we trust in the name of the LORD our God” (Psalm 20:7).

Right now is the perfect time to bring these lessons to life. How are you teaching your kids or grandkids about investing? Have you used the current market environment as a teaching opportunity?

Written by

Matt Bell

Matt Bell

Matt Bell is Sound Mind Investing's Managing Editor. He is the author of five biblical money management books and the teacher or co-teacher on three video-based small group resources. His latest book, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management, will be published by Focus on the Family and its publishing partner, Tyndale House, in April 2023. Matt has spoken at churches, universities, and conferences throughout the country and has been quoted in USA TODAY, U.S. News & World Report, and many other media outlets.