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By CHIP CUTTER, AP Business Writer Chip Cutter, Ap Business Writer Mon Oct 5,
5:09 pm ET
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."