Capitalism Gets a Bad Rap

Key Takeaways

  • Considering what’s happened during young adults’ lives, it’s not surprising that they are wary of capitalism and financial markets.
  • But, young folks haven’t been around long enough to gain a true long-term perspective.
  • Millennials are already good savers—they just have to become savvier investors and let risk assets and compounding work to their advantage.

As the old Chinese proverb goes, “A thousand-mile journey begins with a single step.” Most of us understand that it takes a long time for good things to happen. That’s how capitalism and the financial markets—like most of life—are supposed to work. But, a recent Harvard University study found that over half of millennials (51%) don’t believe in capitalism. That’s not surprising when you consider that today’s young adults have spent most of their lives in the shadows of the dot.com crash of the late 1990s, the global financial crisis of 2008 and the slow-growth economy of today.

However, we know that people who build wealth successfully tend to save first and spend second, and many millennials already do that well. Successful wealth-builders also tend to invest in assets that outpace inflation over time—real estate, stocks, long-term bonds, small businesses, etc. This is where millennials need help. According to BankRate.com, only one in four people (26%) under the age of 30 invests in stocks. So a very large number of young Americans are moving through life facing uncertainties about collecting Social Security. They’ll also be facing higher Medicare costs, so they have to build more wealth and financial security on their own—they can’t expect the government to do it for them. You can’t do that with cash.

Ironically, capitalism and the stock market get a bad rap from NextGen, even though their generation has built some of the largest, most successful companies in the world—Facebook, Google, Apple, Amazon, etc. We use their products and services all the time, and they have publicly traded stock in which anyone can invest. Again, the litany of negative financial events over young people’s lifetimes has them gun-shy about investing and capitalism. That’s a mistake in the long term.

After many years in this business, I’ve learned that people in their 50s often double, even triple, their money by age 60 because they have built up enough wealth to harness the power of risk assets and compound interest. Compound interest doesn’t work any better than right here in America. Over the long term, our companies provide annual rates of return in the 6 percent to 9 percent range to their stockholders. This means that you can reasonably expect to double your money every 8 to 12 years. See my post about the Rule of 72 for more about how compound interest works. Compare that to the near-zero rates of return you get for investing in cash.

Conclusion

Capitalism and the stock markets get a bad rap for a lot of very good reasons, but those reasons aren’t strong enough for young people to avoid them for their entire lives.

Until next time, enjoy. Gary.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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