Saturday, February 27, 2021Canada's Leading Online Business Magazine

How the Markets are Impacting on the Zoomer Generation


The volatility in the global markets over the past 4 years has been at times unbearable! Last summer we experienced in my opinion the highest level of volatility at the time when the United States was faced with the issue of paying or defaulting on its debts. Each day over a four-day period, the Dow Jones (large U.S. index) rose or fell over 400 points. It was the first time in history that we have witnessed such extreme volatility.

When an investor has a long term time horizon, they may not be as sensitive to these large swings on the stock market. However, if you are approaching retirement or are currently in retirement,  your time horizon is generally shorter and thus your appetite for volatility and possible loss due to this volatility is much less. An investor nearing retirement or in retirement (Zoomer generation) does not have as much time as a younger person may have to make back possible losses. Thus for many Zoomers clients that I speak to each day, market volatility is to be avoided at all costs!

Many Zoomers have been quite frustrated over the past 4 or 5 years with respect to their investment returns. They compare the value of their portfolios from 5 years ago (pre-recession) to today and they are not seeing any growth. For Zoomers that are approaching retirement age, this is unacceptable. They need to grow their wealth to be able to retire at a specific age. For many Zoomers, if they cannot achieve a certain rate of return over a certain period of time, they may have to postpone retirement to a later date.

The stock markets around the world for the most part over the past four years have been quite challenged. This has led many central banks to lower their interest rates to help individuals borrow money to purchase things such as homes or cars (big ticket items). If money is cheap and there is a lot of stimulus in the economy, the hope is that a good portion of this money will make its way to the individual consumer to use. In my opinion, this seems to be the plan that many Central Banks around the world are using to try and stimulate growth in their economies. The problem with this strategy is that for many that have fixed expenses and do not want to invest in the equity (stock) markets to grow their wealth due to being afraid of the markets volatility, they are not and cannot earn enough on their savings, GIC’s or government bonds in the this low interest rate environment to cover those day to day costs.

The poor performance of the North American economy continues to weigh heavily on the minds of the Central Banks both here in Canada and in the United States. It is because of this slow pace of economic growth that you will continue to see low interest rates offered on fixed income investments (bonds or GIC’s).

Thus for many Zoomers, they are having to consider investing in other types of products to obtain a higher rate of return on their money to meet their current

and rising costs of living. Many investors today have begun to consider dividend paying common stock to provide them with the income levels they require.

These investments not only are paying a dividend of between 4 per cent and 6 per cent as an example but also have the ability to grow in price over time.

Zoomers and investors in general that need to make a certain amount of money each month are having no choice but to invest in these dividend paying investments for the higher yield they pay even though the investor realizes that there will be some volatility in owning the stock. It s a trade off that more and more investors are considering as interest rates look to remain low for the foreseeable future forcing the Zoomer generation to take on more risk than they would normally take on to earn a higher rate.

A volatile and or falling stock market is not good for any investors whether they are part of the Zoomer generation or any other generation. However Zoomers tend to have smaller time horizons to invest for than younger investors would have and thus in my opinion, falling volatile markets can effect Zoomers harder than other individuals. At the same time, due to the poor performing markets, interest rates remain low.

This too affects many Zoomer portfolios because the rates of return on investments like bonds and GIC’s (lower risk) are paying very low rates of interest. If interest rates are too low (which I believe they are now) this can force Zoomers that need a higher return on their money to make choices with their money that they may not normally make (i.e. invest in equities). At some point the higher payout on some of the dividend paying stocks outweighs the risk of loss with these investments and the investor has no choice but to buy them. This in my opinion is how today’s volatile markets are affecting the Zoomer generation at this time. It is forcing them to make decisions that they may not normally have made if the economy was in better shape.

This article is solely the work of Allan Small for the private information of his clients. Although the author is a registered Senior Investment Advisor with DWM Securities Inc., a DundeeWealth Inc. Company, this is not an official publication of DWM Securities Inc. The views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessarily those of, DWM Securities Inc.