Recession coming...

[RWD]

Now even MMM is warning about a coming recession... While I think he views it in an appropriate way (there's always one coming) I'm worried about the post causing panic/overreactions. Also, I essentially stopped taking it seriously when he referenced Zero Hedge... I thought MMM was supposed to be optimistic...?

[former player]

Fashion necklines are up and hemlines are down: MMM is just calling it like it is.

[acroy]

Realists always find Zero Hedge. I scan it daily ;)
There are some indicators we are getting close to a recession. But these indicators can only tell the past, not predict the future. The world really is different now. Crazy low interest rates, CB's buying everything in sight & willing to buy more...
- Can't compare total debt, because low interest rates
- Can't compare Shiller PE's, because low interest rates / reach for yield / dividends
- can't compare home prices because low interest rates
- Can't compare employment info because changing (lowering) participation rate.
etc etc
Also we've not had a 'boom'. We've had a long slow careful conservative growth. Which is what big companies want (predictability).

Personally I need one more good bust & recovery, so I'm hoping for a nice 20-60% market 'correction'.

Keep calm and Mustachian on ;)

[dmac680chi]

Regardless if we use ETFs aren’t we better consistently adding money instead of trying to time the market?


Sent from my iPad using Tapatalk

[rugorak]

Now even MMM is warning about a coming recession... While I think he views it in an appropriate way (there's always one coming) I'm worried about the post causing panic/overreactions. Also, I essentially stopped taking it seriously when he referenced Zero Hedge... I thought MMM was supposed to be optimistic...?

First read the article again. It is optimistic yet realistic. A recession for most of us is an opportunity. Nothing to worry about. It is more of a warning for falling into the trap a lot of others might in thinking that things are going to be different this time and the market will go up forever. He isn't saying it will be here this year or even in 4. It is just that it will happen and we have many of the right elements in play currently. I fully expect a recession in the near future. But I'm yawning about it. About the only thing I think I might do differently is look into whether paying off my mortgage will be better given the slowing growth in the stock market.

[GrumpyPenguin]

Ha.  He didn't really say much of anything other than there's one coming (duh, of course there is at some point) and it'll be four years sooner than his last prediction (duh, it was four years ago). Just a reminder to keep up good behavior. 

edit: And I'd also point out that he seems to be well aware that he wasn't reeeally saying anything new, so this wasn't to be critical or anything.

[RWD]

Now even MMM is warning about a coming recession... While I think he views it in an appropriate way (there's always one coming) I'm worried about the post causing panic/overreactions. Also, I essentially stopped taking it seriously when he referenced Zero Hedge... I thought MMM was supposed to be optimistic...?

First read the article again. It is optimistic yet realistic. A recession for most of us is an opportunity. Nothing to worry about. It is more of a warning for falling into the trap a lot of others might in thinking that things are going to be different this time and the market will go up forever. He isn't saying it will be here this year or even in 4. It is just that it will happen and we have many of the right elements in play currently. I fully expect a recession in the near future. But I'm yawning about it. About the only thing I think I might do differently is look into whether paying off my mortgage will be better given the slowing growth in the stock market.

That was the way I interpreted the blog post. I think his advice is fine. I'm more worried about how some people might react to it. And the loss of credibility from linking to Zero Hedge.

Zero Hedge is for people that think that society is going to collapse and you should stock up on guns and ammo. From Wikipedia:

Zero Hedge's content has been classified as conspiratorial, anti-establishment, and economically pessimistic, and has been criticized for presenting extreme and sometimes pro-Russian views.

[oldladystache]

Before the tech crash I felt it coming and pleaded with my (now ex) husband to back out of his margined holdings. Fortunately he lightened up some, so when the crash came we weren't totally wiped out.

Before the housing crash I didn't see how things could continue the way they were and thought about selling my house and renting, but that was too much trouble so I didn't.

Now I don't have those same feelings, that things are getting badly out of whack. I'm thinking it will be a while before the next crash.  Not that I'm any kind of expert, of course. But I don't see anything rising as crazily as they did then.

[scantee]

A crash isn't the only option for an economic recession. Prolonged stagnation is an option too, one that would likely effect people aiming for FIRE worse than a crash.

Never heard of Zero Hedge. Looks like your typical kooky, conspiracy theory site. Can't say I'll be going back for any of their brilliant advice.

[A Definite Beta Guy]

If you're fully FIRE'D, recessions are a fine time to rebalance from bonds into cheap stocks. Your dividends will probably take a hit, unfortunately.

If you are still working, and can maintain your job, you may also come ahead. Inflationary pressures tend to ease up, so your dollar stretches farther.

Recessions are hell on the unemployed and businesses.

[HPstache]

I found this line interesting as I've always considered this to be true of many forum members here:

"If you’re a sagely 27 years old right now, you may have never experienced a recession in your adult life – all you have ever seen is the good times. You’re in for an interesting surprise.

[A Definite Beta Guy]

Yup....I'm 30 and graduated in 09, right after the bottom fell out. We all graduated from college and went right to Honda automotive collections at $8/hour.

Wooo!

My Wife graduated in 2011 and complained about how tough the job market was. Man, half of us thought the world was going to freakin' end in 09....

[Tdub]

I just posted about this in the real estate section, but maybe this is a good place too.

As MMM notes, recessions are a great time to buy cheap rental properties.  How should we prepare for this though?  I go into more details on the different strategies I can think of in my other post, but high level:

Should I start putting my money in more bonds and money market funds to save for a down payment in the event of a recession in the next couple of years, or keep buying index funds with the risk of selling at rock bottom of a recession to gather a down payment on a steal-deal property?  The reason I'm even considering the latter is because I risk losing out if I'm in conservative investments and the recession ends up being several years out.

This will be my first recession in my adult life, and therefore my first time changing my investment strategy.

For the area and property type I'm targeting, I'm allocating about $100k in downpayment+closing costs.

What are your strategies for buying real estate in a downturn? 

[JAYSLOL]

I really appreciated how MMM was both realistic and optimistic, as well as dished out a few subtle warnings about going into a recession as a consumer sucka.  For me it was a good facepunch to redouble my efforts to save and get prepared to thrive in the next recession, whenever that happens. 

As far as the link to Zero Hedge, he only referenced their article on consumer debt, he didn't endorse the whole website or the loads of conspiracy crap behind it.  Just because the majority of ZH articles are fear-mongering conspiracy theories, doesn't mean they are wrong about the danger of consumer debt.  You can never change someone's mind by opposing everything they say, even if most of what they say is bat-shit-crazy, you need to acknowledge when they ARE right, agree with them and go from there. 

[surfhb]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

[brooklynmoney]

I was reading a 538 response to a Wall Street Journal OpEd once (their op-ed page is near Zero Hedge level of crazy) and the person wrote "It was, without exaggeration, the dumbest thing I have ever read and I read Zero Hedge" haha.

[itchyfeet]

I just posted about this in the real estate section, but maybe this is a good place too.

As MMM notes, recessions are a great time to buy cheap rental properties.  How should we prepare for this though?  I go into more details on the different strategies I can think of in my other post, but high level:

Should I start putting my money in more bonds and money market funds to save for a down payment in the event of a recession in the next couple of years, or keep buying index funds with the risk of selling at rock bottom of a recession to gather a down payment on a steal-deal property?  The reason I'm even considering the latter is because I risk losing out if I'm in conservative investments and the recession ends up being several years out.

This will be my first recession in my adult life, and therefore my first time changing my investment strategy.

For the area and property type I'm targeting, I'm allocating about $100k in downpayment+closing costs.

What are your strategies for buying real estate in a downturn?

I think the sensible advice would be to keep calm and carry on. You are unlikely to be able to time the market, including the property market.

Stay diversified and ride the ups and downs of the market.

If you intend to buy property, just be careful on the leverage. Maybe only buy if gross rental yields are above 6% or some hurdle rate that you can live with long term if you never get any capital appreciation. Maybe buy a few cheaper properties at different times to benefit from dollar cost averaging.

If you intend to buy shares, maybe keep a stash of cash as well, so that you don't need to sell at a bad time.

How will you know if property is cheap?

If it drops 20% does that make it cheap? I don't know.

Property prices have gone up 70% in Sydney in 5 years, whilst there has been only 10% increase in the consumer price index over the same period. Does that mean that property only becomes cheap if it drops 60%? Again, I don't know. I thought prices were already expensive 6 years ago.

We did buy 7 years ago, and on today's valuation the gross rental yield is only 2.9%. I would certainly not buy with this pathetic GROSS yield. (To be honest, the yield weren't even great when we purchased, but we had purchased it as a home at the time, so was not so yield focused).

[Classical_Liberal]

There are some indicators we are getting close to a recession. But these indicators can only tell the past, not predict the future. The world really is different now. Crazy low interest rates, CB's buying everything in sight & willing to buy more...
- Can't compare total debt, because low interest rates
- Can't compare Shiller PE's, because low interest rates / reach for yield / dividends
- can't compare home prices because low interest rates
- Can't compare employment info because changing (lowering) participation rate.
etc etc

Before the tech crash I felt it coming and pleaded with my (now ex) husband to back out of his margined holdings. Fortunately he lightened up some, so when the crash came we weren't totally wiped out.

Before the housing crash I didn't see how things could continue the way they were and thought about selling my house and renting, but that was too much trouble so I didn't.

Now I don't have those same feelings, that things are getting badly out of whack. I'm thinking it will be a while before the next crash.  Not that I'm any kind of expert, of course. But I don't see anything rising as crazily as they did then.

Agreed.  All indicators were that we were heading for a recession in late 2015/early2016.  We even saw a nice market correction.  However, ZIRP policies and a hefty Fed balance sheet remained in place from the Great Recession. I believe those policies remaining in place stopped what would have been a mild recession in it's tracks.  Now we are in continued low, but stable growth phase with some very excellent recent corporate earnings along with very cheap oil and cheaper than ever renewable energy which will spur some economic growth in itself as it expands. I think we have a few more years of growth left, but I'm no expert and I wouldn't change my investment strategy either way :)

[Tdub]

I think the sensible advice would be to keep calm and carry on. You are unlikely to be able to time the market, including the property market.

Stay diversified and ride the ups and downs of the market.

If you intend to buy property, just be careful on the leverage. Maybe only buy if gross rental yields are above 6% or some hurdle rate that you can live with long term if you never get any capital appreciation. Maybe buy a few cheaper properties at different times to benefit from dollar cost averaging.

If you intend to buy shares, maybe keep a stash of cash as well, so that you don't need to sell at a bad time.

How will you know if property is cheap?

If it drops 20% does that make it cheap? I don't know.

Property prices have gone up 70% in Sydney in 5 years, whilst there has been only 10% increase in the consumer price index over the same period. Does that mean that property only becomes cheap if it drops 60%? Again, I don't know. I thought prices were already expensive 6 years ago.

We did buy 7 years ago, and on today's valuation the gross rental yield is only 2.9%. I would certainly not buy with this pathetic GROSS yield. (To be honest, the yield weren't even great when we purchased, but we had purchased it as a home at the time, so was not so yield focused).

This is what I needed to hear. I know better to try to time the market, but that's essentially the rabbit hole I started to go down in my head. Where I struggle is knowing when thinking ahead and planning start to turn into an attempt at market timing.

In terms of how to know whether an investment is a steal deal, I have calculators that make that relatively clear (for my goals and situation). We already own one rental property there and will have a pretty good sense of what we can expect, although there may certainly be more challenges given that we're talking in the context of a recession.

I think I'm going to keep doing what I'm doing investing-wise (dollar cost averaging), and keep my focus on bringing money in and preventing it from going right back out in the form of consumerism and inefficient tax planning.

One thing is for sure: I'm going to write my plan on paper, and stick to it no matter how psychologically challenging it will be at rock bottom.

[RWD]

How will you know if property is cheap?

If it drops 20% does that make it cheap? I don't know.

One of the reasons we bought a house in 2008 was because prices had dropped 25% and I wanted to get in before they went back up... We sold that house for about a 20-25% loss in 2015. At one point (2011) Zillow said it was worth only half of what we paid. Timing the market is hard.

One thing is for sure: I'm going to write my plan on paper, and stick to it no matter how psychologically challenging it will be at rock bottom.

I also have our investment policy statement written down and intend to follow it regardless of what happens in the market. I reference it every time I manually buy shares in my brokerage account.

[GrumpyPenguin]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Huh, I think a lot of people on this forum have experienced the greatest recession since the Great Depression. That's an interesting statement.  I'm also inclined to believe the readership here, and particularly the forum participants, are not likely to freak and sell out of hear.  Some? Maybe. Most? No.

[HPstache]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Huh, I think a lot of people on this forum have experienced the greatest recession since the Great Depression. That's an interesting statement.  I'm also inclined to believe the readership here, and particularly the forum participants, are not likely to freak and sell out of hear.  Some? Maybe. Most? No.

I disagree.  I think that most people on this forum were (A) too young to experience the great recession (aka still in high school / college) or were so early in their investing that they did not truly feel the full weight of what happened (basically everyone under 35), or (B) weren't serious about investing 10 years ago (aka those who have been "enlightened" to high savings rates in the past 10 years).  I'll bet this is the vast majority of members... Including myself at age 32.  We will see what happens if another big recession happens, I do believe that most around here have the proper mentality to not jump off the roller coaster on the way down, but I also believe that it will be a lot bigger of a test for most of us than we would like to admit seeing our net worths chopped in half over the course of a year.

Edit:  I am trying to find an age poll on the forum but can't seem to find one.  If this forum's demographics are anything like the listeners of Radical Personal Finance (closest I have seen) we may be able to guess that close to 60% of the forum is under the age of 35:

https://radicalpersonalfinance.com/the-audience-demographics-of-radical-personal-finance-and-what-surprised-me-the-most/

[LibrarIan]

The wife and I have been searching for a house, but in the area we want, houses are flying off the market like hotcakes. People are buying houses without even looking at them sometimes. At one open house, we got there 15 minutes after it started and the realtor had already gotten two offers.

Anyway, it has been making things harder for us. We want to take our time and look and not overpay, but that seems to be the opposite of what everyone else wants to do. If this keeps up I can see a bubble bursting in the somewhat near future, or at the very least a bunch of buyer's remorse. After seeing this MMM post, I started thinking maybe we should just hold off for now (no hurry, renting at nice place). Mentioned this to the wife, she got really pissed.

Not sure if I should just bit the bullet and buy a house to make her happy or wait it out and deal with the fallout. She's not as FIRE-centric as me and each time I've brought up a new idea from MMM (or some other financial resource) it has mostly been met with anger or confusion, with her seeming to feel like I'm killing the fun or being a tightwad.

[tooqk4u22]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Huh, I think a lot of people on this forum have experienced the greatest recession since the Great Depression. That's an interesting statement.  I'm also inclined to believe the readership here, and particularly the forum participants, are not likely to freak and sell out of hear.  Some? Maybe. Most? No.

I disagree.  I think that most people on this forum were (A) too young to experience the great recession (aka still in high school / college) or were so early in their investing that they did not truly feel the full weight of what happened (basically everyone under 35), or (B) weren't serious about investing 10 years ago (aka those who have been "enlightened" to high savings rates in the past 10 years).  I'll bet this is the vast majority of members... Including myself at age 32.  We will see what happens if another big recession happens, I do believe that most around here have the proper mentality to not jump off the roller coaster on the way down, but I also believe that it will be a lot bigger of a test for most of us than we would like to admit seeing our net worths chopped in half over the course of a year.

Edit:  I am trying to find an age poll on the forum but can't seem to find one.  If this forum's demographics are anything like the listeners of Radical Personal Finance (closest I have seen) we may be able to guess that close to 60% of the forum is under the age of 35:

https://radicalpersonalfinance.com/the-audience-demographics-of-radical-personal-finance-and-what-surprised-me-the-most/

+1....this was my response in another (hijacked) thread.

I'm still interested to see how the community fares in an inevitable bear market. 

This will be interesting for sure, not just for this community but for all of the FIRE blogosphere.   I had some money when the last downturn happened and it did not feel good....but I was nowhere near or even really thinking about FIRE, so was more job-income focused.  I have quite a bit more now and probably could FIRE if a tightened up a bit, but still not perfectly sure how I will feel about a big downturn (bc those would be much bigger losses now - although my AA is also quite different now).

That said, I have prepared myself mentally for a 25% portfolio decline (which is really larger loss on equities due to bond/cash allocation). Of course I am also in the 3% SWR camp so my 25% decline will translate into a 4% SWR after the fact - kind of cheating I guess but I am good with it.

Not that I want to experience a big decline but I really do look forward to the blogosphere when that happens.  It is so much easier to SAY you will be ok during a downturn when you are in a rising tide environment than actually living through a decline, especially for those that have never even been through any downturn with a meaningful asset level - translation....pretty much anyone who is under 30 has no f'in clue whatsoever bc they would have been still in school or on parents dime and anybody in the 30-40 group would likely have seen it, lived through it, but probably didn't have significant assets in the market so they probably don't know what the f*ck they are talking about either.  Bc for both age groups it has been a rising tide since they either started or got to a point of having meaningful assets. 

FWIW....I am just over the upper range and pretty convinced I still don't know what the f*ck I am talking about when it comes to how I feel if it happens again. 

But as you said.....

Time will tell I guess...

[Tyson]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Sounds like you disagree with the general advice here for investing and are now actively hoping that people fail so that you can say "I told you so".  That's pretty shitty.

[marty998]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Huh, I think a lot of people on this forum have experienced the greatest recession since the Great Depression. That's an interesting statement.  I'm also inclined to believe the readership here, and particularly the forum participants, are not likely to freak and sell out of hear.  Some? Maybe. Most? No.

I disagree.  I think that most people on this forum were (A) too young to experience the great recession (aka still in high school / college) or were so early in their investing that they did not truly feel the full weight of what happened (basically everyone under 35), or (B) weren't serious about investing 10 years ago (aka those who have been "enlightened" to high savings rates in the past 10 years).  I'll bet this is the vast majority of members... Including myself at age 32.  We will see what happens if another big recession happens, I do believe that most around here have the proper mentality to not jump off the roller coaster on the way down, but I also believe that it will be a lot bigger of a test for most of us than we would like to admit seeing our net worths chopped in half over the course of a year.

Edit:  I am trying to find an age poll on the forum but can't seem to find one.  If this forum's demographics are anything like the listeners of Radical Personal Finance (closest I have seen) we may be able to guess that close to 60% of the forum is under the age of 35:

https://radicalpersonalfinance.com/the-audience-demographics-of-radical-personal-finance-and-what-surprised-me-the-most/

I was investing at 21 in 2007. Lost my shirt and then some. Memory of it burned into my mind.

Now carrying nil leverage against shares, not going to make the same mistake again.

Quietly paying down realestate investment debt brick by brick too... interest rates are variable here, and they won't stay low forever.

[surfhb]

I cant wait to visit this site again after a equities meltdown.    Its going to be interesting to see who is left in the RE wagon after such a long bull market and I honestly don't think many people on this forum have experienced such an event.     

Most of you will need to re-adjust your FIRE date several years since you will freak and sell out of fear....that's a fact

Sounds like you disagree with the general advice here for investing and are now actively hoping that people fail so that you can say "I told you so".  That's pretty shitty.

Hardly.    The point is I believe most on this forum are well under 40  and have only experienced the most outrageously generous equities market in history.     It concerns me to see so many touting their FIRE dates without regard to possible future events.    Such things as children, marriage, job loss, RE market crashes, bear markets, ect all have an impact.    I read posts from people here who have yet to experience any of those things but they have managed to acquire a sizable stash the last 8 years and think they can and will never work again.    When you lose %30-40 of your net worth in 5 months the brain can do some crazy stuff.....been there done that.

[rockstache]

Is there an age poll? I don't think most people are "well under 40." Naturally a forum like this is going to attract a number of young people because nowadays the younger generations turn to the interwebs to help them find the answers to things they don't know. But, I think we have a good variety here. This is purely anecdotal based on the people I interact with mostly, but they are all over the map in terms of age as far as I know.

[meadow lark]

And why are you so angry at youthful exuberance and optimism?  I suspect you don't realize how insulting your comment sounds.  If you didn't mean it to be insulting, please reread it and consider that "you can't wait" to see how people react to losing money, and saying we will "freak out and sell out of fear... that's a fact" - is obnoxious.  If you did mean it to sound insulting...  You don't know me or anyone else here. 

  I just FIRED at 42 yo.  I had my babysitting money/birthday money in the market in 1987, I had a little more in the tech crash in the 90's, I had more in 2008.  I have never freaked out and sold out of fear.  If I choose to go back to work to make more money - that is no tragedy and I haven't lost anything.

[Classical_Liberal]

Hardly.    The point is I believe most on this forum are well under 40  and have only experienced the most outrageously generous equities market in history.     It concerns me to see so many touting their FIRE dates without regard to possible future events.    Such things as children, marriage, job loss, RE market crashes, bear markets, ect all have an impact.    I read posts from people here who have yet to experience any of those things but they have managed to acquire a sizable stash the last 8 years and think they can and will never work again.    When you lose %30-40 of your net worth in 5 months the brain can do some crazy stuff.....been there done that.

There are more passive asset allocations that 100% stocks.  Many portfolios have never seen a 30-40% loss of capital.  If this is of concern for you, I suggest you investigate portfolios designed to hedge against such a risk.  Forum contributor Tyler has an excellent site for passive portfolio comparisons.  Or you can play an options game.

And why are you so angry at youthful exuberance and optimism?  I suspect you don't realize how insulting your comment sounds.  If you didn't mean it to be insulting, please reread it and consider that "you can't wait" to see how people react to losing money, and saying we will "freak out and sell out of fear... that's a fact" - is obnoxious.

Argumentative, maybe obnoxious, and probably fear-based; but not insulting.  Since we like stoics around here.  “Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.” ― Marcus Aurelius

Opinions are not insults, personal attacks, or offensive unless one decides to be insulted, attacked, or offended in disagreement.

[Nate R]

My biggest issues with the article was his use of the ZeroHedge graph on consumer debt and he said this: "Household debt levels have risen back to their pre-crash peak, and with an even worse composition: "

We've got a ways to go before we get that bad, debt wise.
Inflation and population growth don't seem to be accounted for in the graph that MMM decided to use. Inflation since 2007 is over 20% now, and population growth in the US on the order of 6-7%.

The ZH article says: "When measured as a percentage of GDP, total household borrowing today is 67% of nominal gross domestic product, compared with about 85% in 2008."

[WhiteTrashCash]

None of us can really do anything about recessions coming. They will do what they do. However, it's one of the main reasons that you should save every possible penny you have. You never know when you are going to have to lean on your savings due to disaster. It could happen to anyone and the people who aren't prepared are going to get it the worst.

[Papa bear]

For those that want interesting looks at how a FIRE community does during a downturn, check out some of the old threads on early-retirement.org forums.

On the site, there was a good mix of "stay the course!" And "the world is ending!" type threads there.  They skew more conservative than MMM, but are the same type of logical thinkers that are on this site.  I hear they lost many a member during the recession and some of the gung-ho younger types had to go back to work, nary to come back to post unless it was with their tales between their legs. 


Sent from my iPhone using Tapatalk

[talltexan]

I think MMM is more worried about the Auto-loan and student loan debt bubble than is justified.

The problem with the 2008 crisis wasn’t the housing collapse. It was the extent to which the housing collapse endangered the banks, thereby endangering the entire financial system on which every business relies to manage cash flow. People really had no idea what these assets (i.e. mortgages, i.e. stews of mortgages) were worth, and some possible answers implied that very large banks should be bankrupt. The total of all auto and student loans is still less than $2,700 billion, not nearly enough to represent this kind of danger to our very large American banks. The recession is coming, but it won't be as bad as 2008.

[tooqk4u22]

I think MMM is more worried about the Auto-loan and student loan debt bubble than is justified.

The problem with the 2008 crisis wasn’t the housing collapse. It was the extent to which the housing collapse endangered the banks, thereby endangering the entire financial system on which every business relies to manage cash flow. People really had no idea what these assets (i.e. mortgages, i.e. stews of mortgages) were worth, and some possible answers implied that very large banks should be bankrupt. The total of all auto and student loans is still less than $2,700 billion, not nearly enough to represent this kind of danger to our very large American banks. The recession is coming, but it won't be as bad as 2008.

I would also add that the student loan levels are somewhat of a red herring.  While the overall level has increased significantly the average levels aren't that bad - sure there are some people out there with $150k of loans for a liberal arts degree but there are also plenty that only have $10-20k and then there are those that have been paying and are near the end with little balances.  The average balance is about $33k.   

Also, student loans have a stacking effect and should be or should have been expected to grow over the last 15 years exponentially when you look at increased emphasis/need on college educations, largest population (millenials) in history coming of college age, a 4-5 year expense period vs a 10-20 year repayment period - of course these will (and have) result in increasing student loans.  All that said, student loans do seem to easy to get at such high levels and parent/student education on the subject is terrible - and unfortunately the ease of debt translates to nice buildings and good salaries/benefits in the higher ed system but the educational aspect hasn't actually improved.  Higher ed is just a business like any other.


https://www.statista.com/statistics/183995/us-college-enrollment-and-projections-in-public-and-private-institutions/

[HPstache]

Is there an age poll? I don't think most people are "well under 40." Naturally a forum like this is going to attract a number of young people because nowadays the younger generations turn to the interwebs to help them find the answers to things they don't know. But, I think we have a good variety here. This is purely anecdotal based on the people I interact with mostly, but they are all over the map in terms of age as far as I know.

I would bet it's 70% +/- 5% under 40 on this forum.  Whether that qualifies as "well under 40" is up for argument.  Could not find a poll specific to this forum, so someone would have to start one to be sure...

[dividendman]

The next recession won't happen until 2030.

[HPstache]

Is there an age poll?

I just started one here, which asks other great recession-related questions:

https://forum.mrmoneymustache.com/welcome-to-the-forum/what-is-your-age-and-how-much-did-you-have-invested-in-2007/msg1599417/

Currently, 75% of the forum is under 40

[SisterX]

But you seem to think that just because people are under 40 they weren't affected by the 2008 recession. Even if you didn't have anything invested at that time, I'd say that coming of age in a time with so much financial uncertainty and fear has a great impact on people. The millennials saw the financial mistakes of their parents and, in many ways, metrics have shown that they're far more risk-averse (here and here, to cite just two sources) and save money at higher rates than other generations, despite student loan debt. (Here, here, and here.) Despite all the hand-wringing over avocado toast, most millennials are, by many metrics, better with their money than their parents are. The fact that they save at high rates and do so in ways different from their parents is, I would argue, a direct reaction to having grown up in the midst of the Great Recession. To brush that off as not affecting people because they weren't of a certain age is silly.

[LifeHappens]

But you seem to think that just because people are under 40 they weren't affected by the 2008 recession. Even if you didn't have anything invested at that time, I'd say that coming of age in a time with so much financial uncertainty and fear has a great impact on people. The millennials saw the financial mistakes of their parents and, in many ways, metrics have shown that they're far more risk-averse (here and here, to cite just two sources) and save money at higher rates than other generations, despite student loan debt. (Here, here, and here.) Despite all the hand-wringing over avocado toast, most millennials are, by many metrics, better with their money than their parents are. The fact that they save at high rates and do so in ways different from their parents is, I would argue, a direct reaction to having grown up in the midst of the Great Recession. To brush that off as not affecting people because they weren't of a certain age is silly.

This is a great point. I'm one of the unlucky Generation X who graduated college in 1999 and entered the job market just as the tech bubble burst. I didn't have a single $ in the market, but I saw graduates just a year or two ahead of me get laid off from their $90,000 consulting gigs and lived with stagnant wages and slim hiring prospects for years.

That was definitely a factor that drove me to be (relatively) frugal and read Your Money or Your Life in my 20s.

[rockstache]

Is there an age poll?

I just started one here, which asks other great recession-related questions:

https://forum.mrmoneymustache.com/welcome-to-the-forum/what-is-your-age-and-how-much-did-you-have-invested-in-2007/msg1599417/

Currently, 80% of the forum is under 40

About 14% of the forum is what I would consider "well under 40" which is about what I was expecting.

[RWD]

Is there an age poll?

I just started one here, which asks other great recession-related questions:

https://forum.mrmoneymustache.com/welcome-to-the-forum/what-is-your-age-and-how-much-did-you-have-invested-in-2007/msg1599417/

Currently, 80% of the forum is under 40

About 14% of the forum is what I would consider "well under 40" which is about what I was expecting.

Keep in mind the percentages shown in the poll are out of the total votes (including the investment and house questions) so it isn't correct to read directly as age distribution. The number of users under age 33 is 40.2% according to the current poll results. Under 26 represents 11.8% of users.

[rockstache]

Oops you're right, thanks for pointing that out. Still a pretty good bell curve, all things considered.

[tooqk4u22]

But you seem to think that just because people are under 40 they weren't affected by the 2008 recession. Even if you didn't have anything invested at that time, I'd say that coming of age in a time with so much financial uncertainty and fear has a great impact on people. The millennials saw the financial mistakes of their parents and, in many ways, metrics have shown that they're far more risk-averse (here and here, to cite just two sources) and save money at higher rates than other generations, despite student loan debt. (Here, here, and here.) Despite all the hand-wringing over avocado toast, most millennials are, by many metrics, better with their money than their parents are. The fact that they save at high rates and do so in ways different from their parents is, I would argue, a direct reaction to having grown up in the midst of the Great Recession. To brush that off as not affecting people because they weren't of a certain age is silly.

This is a great point. I'm one of the unlucky Generation X who graduated college in 1999 and entered the job market just as the tech bubble burst. I didn't have a single $ in the market, but I saw graduates just a year or two ahead of me get laid off from their $90,000 consulting gigs and lived with stagnant wages and slim hiring prospects for years.

That was definitely a factor that drove me to be (relatively) frugal and read Your Money or Your Life in my 20s.

I agree that millenials have been impacted by the downturn and that can (and has) made them more conservative - in fact it may be detrimental because of the fear of investing that millenials seem to have.  But that is not the same as knowing how one will feel at a time when they have sizeable invested assets and the market starts tanking.  I do think there is a possibility that due to the availability of information and historical context through blogs, simulations, etc being at your fingertips millenials should be better armed to combat irrational fears with the knowledge - this is something prior gens didn't have and should bode well. 

Regarding the spending, millenials are not really better at saving than prior gens and that is pretty much spelled on in most of your links - they spend less on the big stuff (houses and cars) but more on rent, travel, eating out, entertainment (experiences) than prior gens. This could be bad....not saving much combined with no asset accumulation.  At least the other gens end up with paid off houses at some point typically.

[talltexan]

Younger people didn't see the drop in investment value, but they were victims of the fragile labor market of 2008-2011.

Hard to build up experience when no one will hire you because you're inexperienced.

[SisterX]

Regarding the spending, millenials are not really better at saving than prior gens and that is pretty much spelled on in most of your links - they spend less on the big stuff (houses and cars) but more on rent, travel, eating out, entertainment (experiences) than prior gens. This could be bad....not saving much combined with no asset accumulation.  At least the other gens end up with paid off houses at some point typically.

You're failing to take into account both a changing market (houses in areas with decent job markets are astronomical) and changing priorities. Not only are housing prices rather insane but many people see that they're not necessarily the grand investment they're touted to be and wonder, why bother? Frankly, that seems rather sensible. If the purchase price is incredibly high for an indeterminate ROI, why should we be wringing hands over that? Besides, who's to say that millennials won't start buying homes in larger numbers when they actually start families (many are still younger than the median age at which people have children these days) and pay off the student loans so that they can afford a down payment? Added to all of that, with the uncertainties in both the job market and the longevity in any particular job one may take, the flexibility of not being tied to any one location can be seen as a net positive. If you're not going to be tied to a job then being able to take your experience somewhere else is a great thing.

Last, one thing that I've noticed is not necessarily monetarily but ties into what many people deride. The classic brunch out example can be seen as people wasting money on a frivolous expense, or it can be seen as both networking and building community. I don't know of anyone in any age bracket who goes out to brunch once a week, or even once a month. Just because Millennials as a whole "go out to brunch" and order avocado toast doesn't mean that the entire generation is going out every week and ordering expensive items every time they go. It also seems to be a way to catch up with each other, not to dine out for the sake of blowing money. I see a lot of Xers and Boomers who don't have a big circle of friends because they're "too busy", or they were too busy when younger to keep up friendships. That leaves them in middle age and older suddenly at a loss, trying to rebuild relationships or start new ones. Tragic! I think many Millennials have realized that friends are at least as important as any other aspect of life and spend more capital (time, money) on keeping up with relationships than do older people. If all you've got are your friends, and you feel that you can depend on those around you rather than on the future or the markets or ROI or whatever, that's what you're going to invest in. And if you don't have an apartment big enough for entertaining a group of friends and don't want to spend a bunch of money on dinner, then brunch is a sensible maneuver.

Especially when you consider how much of job finding and everything else happens based on word of mouth and networking these days, it's actually quite smart. Hanging out with that friend-of-a-friend, even in a group context, could help you swing into a better paying position or score an apartment with a lower rent in a nicer area of town.

[Uturn]

I started in IT around 1995.  Man those were some good years!  1995-2000 being a network engineer was like printing your own cash.  So naturally, I financed everything, house, 2 motorcycles, 3 cars, even a dog.  Since I had a 3 room house with just me and the dog, I rented two rooms out.  What do you do with an extra $800/mo and you are heavy in debt?  Flying lessons, or course!  Savings?  No, that's for old people.  Worried?  Nope, I'm a network engineer.  By 2001, companies figured out that Y2K was all hype, even IT needed to show some ROI just like everyone else, and some assholes flew plane into buildings.  The economy tanked and by late 2002, I found myself living in a financed Ford Ranger when not out being an OTR trucker.  But I didn't lose any money in the market!

I spent the next few year rebuilding my career and digging out of the financial pit that I had dug for myself.  I was firmly in the don't finance stuff camp by the time the 2007 recession rolled round, but was still not saving much due to paying off debt.  But I had been able to keep myself afloat even with a layoff.  So I didn't lose anything in the market again.

Now I find myself at a point where I really wish that I had been smarter.  I am in the market, I understand that recessions/pull-backs/corrections happen.  I say that when it happens again I will stay to course, ride it out, be better off after the recovery.  But I am nervous and am curious about if I will really do that, worry free like my investment plan says I will. 

[tooqk4u22]

Regarding the spending, millenials are not really better at saving than prior gens and that is pretty much spelled on in most of your links - they spend less on the big stuff (houses and cars) but more on rent, travel, eating out, entertainment (experiences) than prior gens. This could be bad....not saving much combined with no asset accumulation.  At least the other gens end up with paid off houses at some point typically.

You're failing to take into account both a changing market (houses in areas with decent job markets are astronomical) and changing priorities. Not only are housing prices rather insane but many people see that they're not necessarily the grand investment they're touted to be and wonder, why bother? Frankly, that seems rather sensible. If the purchase price is incredibly high for an indeterminate ROI, why should we be wringing hands over that? Besides, who's to say that millennials won't start buying homes in larger numbers when they actually start families (many are still younger than the median age at which people have children these days) and pay off the student loans so that they can afford a down payment? Added to all of that, with the uncertainties in both the job market and the longevity in any particular job one may take, the flexibility of not being tied to any one location can be seen as a net positive. If you're not going to be tied to a job then being able to take your experience somewhere else is a great thing.

Last, one thing that I've noticed is not necessarily monetarily but ties into what many people deride. The classic brunch out example can be seen as people wasting money on a frivolous expense, or it can be seen as both networking and building community. I don't know of anyone in any age bracket who goes out to brunch once a week, or even once a month. Just because Millennials as a whole "go out to brunch" and order avocado toast doesn't mean that the entire generation is going out every week and ordering expensive items every time they go. It also seems to be a way to catch up with each other, not to dine out for the sake of blowing money. I see a lot of Xers and Boomers who don't have a big circle of friends because they're "too busy", or they were too busy when younger to keep up friendships. That leaves them in middle age and older suddenly at a loss, trying to rebuild relationships or start new ones. Tragic! I think many Millennials have realized that friends are at least as important as any other aspect of life and spend more capital (time, money) on keeping up with relationships than do older people. If all you've got are your friends, and you feel that you can depend on those around you rather than on the future or the markets or ROI or whatever, that's what you're going to invest in. And if you don't have an apartment big enough for entertaining a group of friends and don't want to spend a bunch of money on dinner, then brunch is a sensible maneuver.

Especially when you consider how much of job finding and everything else happens based on word of mouth and networking these days, it's actually quite smart. Hanging out with that friend-of-a-friend, even in a group context, could help you swing into a better paying position or score an apartment with a lower rent in a nicer area of town.

To summarize....you agree that millenials spend a lot but its ok because they spend for different reasons provided they are justifiable by those doing the spending.  Perfect, thanks. 

[Tyson]

Regarding the spending, millenials are not really better at saving than prior gens and that is pretty much spelled on in most of your links - they spend less on the big stuff (houses and cars) but more on rent, travel, eating out, entertainment (experiences) than prior gens. This could be bad....not saving much combined with no asset accumulation.  At least the other gens end up with paid off houses at some point typically.

You're failing to take into account both a changing market (houses in areas with decent job markets are astronomical) and changing priorities. Not only are housing prices rather insane but many people see that they're not necessarily the grand investment they're touted to be and wonder, why bother? Frankly, that seems rather sensible. If the purchase price is incredibly high for an indeterminate ROI, why should we be wringing hands over that? Besides, who's to say that millennials won't start buying homes in larger numbers when they actually start families (many are still younger than the median age at which people have children these days) and pay off the student loans so that they can afford a down payment? Added to all of that, with the uncertainties in both the job market and the longevity in any particular job one may take, the flexibility of not being tied to any one location can be seen as a net positive. If you're not going to be tied to a job then being able to take your experience somewhere else is a great thing.

Last, one thing that I've noticed is not necessarily monetarily but ties into what many people deride. The classic brunch out example can be seen as people wasting money on a frivolous expense, or it can be seen as both networking and building community. I don't know of anyone in any age bracket who goes out to brunch once a week, or even once a month. Just because Millennials as a whole "go out to brunch" and order avocado toast doesn't mean that the entire generation is going out every week and ordering expensive items every time they go. It also seems to be a way to catch up with each other, not to dine out for the sake of blowing money. I see a lot of Xers and Boomers who don't have a big circle of friends because they're "too busy", or they were too busy when younger to keep up friendships. That leaves them in middle age and older suddenly at a loss, trying to rebuild relationships or start new ones. Tragic! I think many Millennials have realized that friends are at least as important as any other aspect of life and spend more capital (time, money) on keeping up with relationships than do older people. If all you've got are your friends, and you feel that you can depend on those around you rather than on the future or the markets or ROI or whatever, that's what you're going to invest in. And if you don't have an apartment big enough for entertaining a group of friends and don't want to spend a bunch of money on dinner, then brunch is a sensible maneuver.

Especially when you consider how much of job finding and everything else happens based on word of mouth and networking these days, it's actually quite smart. Hanging out with that friend-of-a-friend, even in a group context, could help you swing into a better paying position or score an apartment with a lower rent in a nicer area of town.

Unless they are saving a good chunk of their income (20% or more), they are just as dumb as every other generation.  Not more dumb and not less dumb.  Equally as dumb.

[Classical_Liberal]

Regarding the spending, millenials are not really better at saving than prior gens and that is pretty much spelled on in most of your links - they spend less on the big stuff (houses and cars) but more on rent, travel, eating out, entertainment (experiences) than prior gens. This could be bad....not saving much combined with no asset accumulation.  At least the other gens end up with paid off houses at some point typically.

You're failing to take into account both a changing market (houses in areas with decent job markets are astronomical) and changing priorities. Not only are housing prices rather insane but many people see that they're not necessarily the grand investment they're touted to be and wonder, why bother? Frankly, that seems rather sensible. If the purchase price is incredibly high for an indeterminate ROI, why should we be wringing hands over that? Besides, who's to say that millennials won't start buying homes in larger numbers when they actually start families (many are still younger than the median age at which people have children these days) and pay off the student loans so that they can afford a down payment? Added to all of that, with the uncertainties in both the job market and the longevity in any particular job one may take, the flexibility of not being tied to any one location can be seen as a net positive. If you're not going to be tied to a job then being able to take your experience somewhere else is a great thing.

Last, one thing that I've noticed is not necessarily monetarily but ties into what many people deride. The classic brunch out example can be seen as people wasting money on a frivolous expense, or it can be seen as both networking and building community. I don't know of anyone in any age bracket who goes out to brunch once a week, or even once a month. Just because Millennials as a whole "go out to brunch" and order avocado toast doesn't mean that the entire generation is going out every week and ordering expensive items every time they go. It also seems to be a way to catch up with each other, not to dine out for the sake of blowing money. I see a lot of Xers and Boomers who don't have a big circle of friends because they're "too busy", or they were too busy when younger to keep up friendships. That leaves them in middle age and older suddenly at a loss, trying to rebuild relationships or start new ones. Tragic! I think many Millennials have realized that friends are at least as important as any other aspect of life and spend more capital (time, money) on keeping up with relationships than do older people. If all you've got are your friends, and you feel that you can depend on those around you rather than on the future or the markets or ROI or whatever, that's what you're going to invest in. And if you don't have an apartment big enough for entertaining a group of friends and don't want to spend a bunch of money on dinner, then brunch is a sensible maneuver.

Especially when you consider how much of job finding and everything else happens based on word of mouth and networking these days, it's actually quite smart. Hanging out with that friend-of-a-friend, even in a group context, could help you swing into a better paying position or score an apartment with a lower rent in a nicer area of town.

To summarize....you agree that millenials spend a lot but its ok because they spend for different reasons provided they are justifiable by those doing the spending.  Perfect, thanks.

Anecdote.  I'm a late Gen X'er dating a younger millennial.  Her & her group of friends have this obsession with going places over weekends.  After spending a day driving (or worse flying) to the new locale we do exactly what we would have done if we stayed home... Visit the park, grab coffee or drinks, go out to eat, maybe visit a local landmark, then head home for work on Monday.  The only difference is now she/they have a selfie of themselves being at [insert location here].  Personally, I just don't get it.  If you're going to spend a bunch of money and time to travel somewhere, why not actually spend more time at the destination?

It's a good trend to watch for investing, millennials pay tons for travel or "experiences", but not so much for stuff.  lol, Maybe this is why Buffet got back into airline stocks after he swore he wouldn't touch them ever again...